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Losing a Spouse/Parent

Responsibility for Paying Debts After Death

When a family member dies, what happens to the debts?  That is a question every family faces at one time or another.  The answer depends on who is left behind and whether the estate has sufficient assets to require a probate.

Generally, the debt dies with the deceased, but there are several exceptions to that rule.  If the deceased dies with sufficient assets for a probate, the probate estate will assume liability for the debts.  Joint debts are another exception.  Anyone who was jointly liable on the account remains responsible for the debt. For example:  husband and wife have a credit card account.  If he dies, wife will be responsible to pay off the balance. 

Secured Debts and Debts that are Jointly Owned

Secured debts are things like mortgages and car loans.  The item being purchased on credit secures the loan.  If you don’t pay your car payments, the creditor repossesses the car.  If your mortgage goes into default, you lose the house. For example: Jane, a widow, secured a mortgage and purchased a home. Three years later, she died.  The mortgage does not disappear at her death.  The home loan is an encumbrance on the house.  Her estate or her heirs can opt to sell the house and pay off the loan or keep the house and continue to pay on the mortgage. That holds true with any secured debt. 

Arizona is both a community property and a community debt state.  If debts are contracted during a marriage, both spouses are considered responsible for the debt.  It doesn’t matter whether both names are on the account. If John takes out a credit card in his name alone, and if John is hit by a bus and killed, his wife is left to pay off the credit card debt. It may be a different story if John incurred the debt before the marriage, but so long as it was incurred during the marriage, the surviving spouse is stuck with paying it off. 

The same holds true for other joint debts. If dad co-signs a loan for his son and the son dies, the parent will continue to be responsible on the loan.  If a mother and daughter share a charge account and mom dies, the daughter will be obligated to pay off the balance. The bottom line here – joint obligations are not erased if one of the account signers dies.

Small Estates Transferred by Affidavit

Arizona law allows small estates to be transferred to heirs by affidavit rather than probate.  Arizona Revised Statutes, Section 14-3971.  If the probate estate totals $75,000.00 or less, the affidavit process is sufficient to transfer assets.  My own family history will serve as an example of how it works.  When my mother died in 2013, at the ripe old age of 95, most of her assets were held jointly with either me or with my brother.  When mom sold her house, she put the sale proceeds into several CDs.  My brother was listed as a joint owner of one of the CDs and I was listed on the other.  Her savings’ account was held jointly with my brother.  The only asset listed solely in her name was a second savings’ account containing $46,000.00.  Fortunately, she had no debts. After notifying her pension provider and Social Security of her death, I downloaded the forms and drafted the affidavit.   I used the form on the Arizona Superior Court’s website and had it notarized.  Then, my brother and I proceeded to the bank with our copies of mom’s death certificate and our affidavits.   With the death certificate and affidavit, it was a simple matter to transfer everything into my name and my brother’s name.  We split everything down the middle, just as my mother wanted.

If mom had died with credit card or charge account, debt, would we have been responsible to pay it?  The answer is no.  According to the Federal Trade Commission (FTC), a surviving relative has no obligation to pay the debts of the deceased unless they signed on the account.  This issue comes up most often when parents die, and the children are left to sort out the deceased’s affairs.  Unless they are joint owners of the account, parents have no obligation to pay bills incurred by deceased, adult children, and children are not obligated to pay their parents’ debts.  It is different if there is a probate estate as will be discussed below.

The Federal Fair Debt Collection Practices Act, which is enforced by the FTC prohibits debt collectors from using abusive, unfair or deceptive practices to collect debts.  That doesn’t stop collection agencies from trying to persuade you to pay your dead relatives obligations.  When my husband’s father died, he left no money but lots of debt.  For months, my husband and I were hounded by collection agencies trying to get us to pay his many credit card debts.  It finally stopped after I sent certified letters informing the collection agencies that we were not obligated to pay the debts and asked them to stop writing us letters and calling. 

Debt Obligations in a Probate Estate

When there is a probate, the deceased person’s debts transfer to the probate estate.  The estate is a legal entity responsible for carrying on the business of the deceased.  The personal representative (executor) is responsible to pay all known bills out of the assets of the estate.  The personal representative (PR) must write a letter to all known creditors advising them of the death.  He or she must also publish a notice in a local paper advising all unknown creditors of the death and of their obligation to notify the PR of their claims in the allowed time frame.  Arizona Revised Statutes, Section 14-3801.  If the assets of the estate are insufficient to pay the debts, the PR will exhaust the assets paying creditor claims.  The heirs will get nothing, but neither will they be obligated to pay the rest of their dead relative’s bills. 

Life insurance proceeds and joint bank and investment accounts fall outside of probate.  If an aunt dies and you are the beneficiary of her life insurance, that money comes directly to you.  It does not go through probate and cannot be used to pay off your deceased aunt’s bills.  The same is true any time you are a life insurance beneficiary.  Joint bank and investment accounts are treated in the same way.  If you and your dad have a joint savings’ account and he dies, the account is now yours.  It cannot be used to pay his debts.

In summary, if a collection agency calls you and wants you to pay money owed by a dead relative, don’t pay until you know your rights. If you are the surviving spouse and the debt was contracted during the marriage, you will be responsible to pay it off.  If there is a probate, direct the collection agent to the PR.  If there is no probate and you are not a signer on the account or loan, tell the collection agent to stop calling you.  If they persist in their collection efforts, send a certified letter and pay for a return receipt.  If they continue calling, contact the Arizona Attorney General’s Consumer Fraud Division and report the credit agency.

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This website has been prepared for general information purposes only. The information on this website is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. Also, the law may vary from state-to-state or county-to-county, so that some information in this website may not be correct for your situation. Finally, the information contained on this website is not guaranteed to be up to date. Therefore, the information contained in this website cannot replace the advice of competent legal counsel licensed in your jurisdiction.

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