It can be devastating to lose a parent. But when a parent dies owing substantial debts, it can also be worrisome.
It’s also becoming more common for people to die in debt: older Americans are increasingly likely to file for bankruptcies, and their representation among those in bankruptcy is at the highest level ever, according to ”Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society,” an Indiana Legal Studies research paper published earlier this year.
Usually – but not always — you won’t be responsible for your parent’s debt after his or her death, unless you are a co-signer on a debt or hold a joint account with them.
A person’s debts don’t go away when they die – the debt is now owned by that person’s estate. But if your parent had some assets, those assets will be used to pay the debts before any remaining assets can be distributed to heirs.
Here’s a look at different kinds of debt and whether you might be held responsible for them, assuming your parent had no surviving spouse. (Generally speaking, surviving spouses are also not responsible for a deceased person’s debts, unless they were a co-signer or joint account holder. There are some exceptions, which vary according to state laws.)
Credit cards: Unless you are a co-signer or joint account holder on the credit card, you are not responsible for your parent’s credit card debt. Some estates don’t have enough to pay off all unsecured debts – meaning credit cards or personal loans. In that case, the estate is declared insolvent and the debt is written off.
Medical debt: If your parent died with unpaid hospital or doctor bills, their estate is responsible for paying them if assets exist.
Check your state laws, however. In some states, adult children may be required to pay any debts owed to nursing home and other long-term care facilities. The extent of responsibility may vary by state. And if your parent received Medicaid benefits, the state may seek repayment of benefits from the estate, depending on Medicaid rules and state laws.
Secured loans: Monthly payments on a home or a car still need to be made, either by the parent’s estate or heirs, or the item will be repossessed.
If your parent was “upside down” on a mortgage, meaning they owed more than the home’s worth, you can’t be forced to pay the debt beyond what the house sells for. The lender may turn to your parent’s estate to pay the difference.
Taxes: The person’s estate is responsible for paying any property or income taxes.
If your parent had some assets, but not enough to pay all his or her debts, it’s up to the state probate court to prioritize the debts.
These are general guidelines, but your situation may vary depending on state laws. Consider hiring an attorney, especially if you’re the executor of your parent’s estate. An executor must follow state laws in distributing funds, and can be held responsible for mistakes. The estate would typically pay the attorney’s cost and may prioritize those expenses.
Lastly, be wary if you are contacted by debt collectors. Family members of the deceased are protected by the federal Fair Debt Collection Practices Act. That act does not allow debt collectors from using abusive, unfair or deceptive practices in collecting a debt, according to the Federal Trade Commission (FTC).
Debt collectors are allowed to contact a deceased person’s spouse; parents (in the case of a deceased minor child); guardian; executor; or administrator to discuss the debt. But they can’t mislead family members by saying they are responsible for paying the debt if they aren’t. Read more from the FTC.