Outstanding Debts at Death.

A little primer on how outstanding debts are handled for those who pass away.

Outstanding debt can range from the last cell phone bill, an electricity bill or credit cards. It also includes unpaid taxes like property taxes or income taxes. Plus those mortgages and other secured loans.

If probate is opened when a loved one passes away, a public announcement of the death is posted in a local newspaper where the decedent lived. In addition, a notice of administration is also sent to all known creditors of the probate proceedings. This allows creditors to come forth and file claim against the estate for repayment of outstanding debt.

There are procedures that a creditor must follow to ensure that their claim is properly submitted. It is up to personal representative of the estate and the attorney to either approve or deny the claim. If the claim is approved then the estate will pay the creditor the amount owed before probate closes. If the claim is denied the creditor then has an opportunity to appeal.

Any final medical bills, funeral expenses and hospice or long-term care expenses can usually wait for payment until the insurance companies have processed their claims, death benefits are paid from any life insurance policies or the estate has liquid assets.

Make sure you do not pay for estate bills and deplete the estate cash at the same time. If you find yourself in this position, tell the creditors of what is going on and when they can expect payment. Creditors are usually very understanding when someone dies and are willing to negotiate repayment terms.

If the estate is or will become insolvent, it will require guidance from the court on how to handle the repayment of debt. Heirs will not be responsible for the debt of a loved one if the estate is insolvent. Though any debts held jointly now become the responsibility of the surviving person listed on the papers.

Consult with a probate attorney for more information.