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What Happens to Debt When Someone Dies?

13/01/2012 by Brian Talbot



Once the grieving is over, family members must deal with the estate. The greatest fear at this point is the deceased will have a massive debt load for which they will be responsible.

There is a significant amount of bad information and personal opinion out on the Internet regarding this matter. Here is the reality of what happens when settling a person’s estate.

When someone dies, his or her estate is responsible for any outstanding debt. This does not mean the family, but the estate, as in the deceased’s actual assets.

If the debt exceeds assets, anyone inheriting anything will forego their inheritance as creditors have first right to the assets in order to settle the debt. The exception to this rule would be insurance money, which is not in any way effected by the estate’s debt.

If you own property with the deceased, there are some terms that you should become familiar with regarding the estate settlement.

Tenants in common and joint tenants are generally how property owners are labeled. If you are tenants in common, both parties actually own their own share of the real estate in question. Joint tenants own the property together as a whole.



If you are deemed tenants in common, the share of the property that belonged to the deceased would be folded into the estate to cover the debt.

However, whoever inherited the share could negotiate the value of that share of the property with the creditors to avoid having to sell the property.

If they cannot do that, then the property would more than likely have to be sold, with the other owner getting their full share while the heir would have pay debtors and any remaining funds would be theirs.

When you are joint tenant, the property will automatically become yours, but reditors still have a right to their money. They can file a court action that would actually force you to sell the property.

In this case, the value of the property would be split down the middle, and your responsibility would be only the value of the deceased’s half of the property.

You would be entitled to any funds leftover as the joint owner of the property.



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