What Happens If You Are Legally Owed Money By Someone Who Dies?
Collecting debt from a deceased person may sound unpleasant, but there are plenty of legitimate reasons why you might need to collect against an estate — and ultimately impacts your personal finances. For example, you may have given them a loan that they did not repay, or you did work for that person and were not paid during their lifetime.
Trending Now: You Can Get These 3 Debts Canceled Forever
For You: Owe Money to the IRS? Most People Don’t Realize They Should Do This One Thing
Regardless of the reason why that person owes you money, it’s important to understand how debt is dealt with after a person’s death and what you can do to recover the money you’re owed.
Also read what happens to financial assets after death.
What Happens To a Person’s Debt After They Die?
When someone dies, all of their financial and non-financial assets are referred to as their “estate.” An estate can include bank accounts, property, investments, businesses, furniture, vehicles and more. The local probate court will take stock of these assets and distribute them to any legal heirs or creditors.
If the deceased person has any outstanding debts, those debts become liabilities on their estate, according to the Federal Trade Commission. The estate is still responsible for settling these debts and creditors are often among the first to be paid back from any remaining assets.
Claims against the estate are generally categorized according to their priority for repayment. For example, people who cover the cost of the funeral are typically paid back first. Then, administrative costs like lawyer fees and court costs are covered. Finally, other debts will be settled before any remaining assets are distributed to heirs.
According to the Consumer Financial Protection Bureau, if there’s no money, property or other assets left in the estate, then debts may go unpaid. However, in some cases, other people will share the liability for the deceased person’s debts and may be forced to settle the outstanding amount.
Read More: This Is the One Type of Debt That ‘Terrifies’ Dave Ramsey
Who Is Responsible For Paying a Deceased Person’s Debts?
As outlined above, the deceased person’s estate is responsible for settling as many debts as possible given the estate’s financial means. Surviving relatives are typically not required to settle debts.
However, according to the FTC, relatives may be responsible for repaying the debt of someone who has died if:
They co-signed a loan with the deceased which has outstanding debt.
They hold a joint credit card account with outstanding debt.
They’re a spouse in a state where the law requires them to pay certain types of debt.
They’re a spouse in a state that requires them to use jointly-owned property to pay off debts of their deceased spouse.
How To Collect Debt Owed To You By Someone Who Has Died?
If you’re owed money by a deceased person, you can make a claim against the estate by submitting a written request for the estate to settle the outstanding debt. Before starting the collection process, make sure that you have a clear understanding of your state’s probate laws, as they can differ from state to state.
For example, states have varying procedures for notifying creditors who may want to file a claim against an estate. Some places may announce the estate’s probate process in the newspaper, while others may require estate representatives to mail notices to known creditors.
You should also be aware of filing deadlines, as each state has its own time limits for making claims against an estate. You may be unable to collect the debt if you miss the filing deadline.
If in doubt, be sure to contact a lawyer or the probate court where the deceased person lived to learn more about filing a claim.
Here’s an overview of the claims process, as detailed by Jane Haskins, Esq. for LegalZoom:
Write a claim to the executor or administrator of the estate stating under oath that you are owed a debt.
Provide details about the debt amount and attach any written documentation to the claim.
File your claim with the probate court and send a copy to the executor or administrator of the estate.
Recourses For Collecting Money Owed
In the unfortunate event that you are legally owed money by a person who died, you can still attempt to recover the owed amount by making a claim against their estate. It’s a fairly straightforward process that involves submitting a written claim to the estate representatives and local probate court.
Since debts are paid according to their priority and before money is distributed to heirs, there’s a good chance that you can still obtain the amount legally owed to you.
However, if the estate doesn’t have enough assets to cover its debts, then your settlement options may be limited. If your claim is denied, you can consult a lawyer to learn more about any other possibilities for obtaining the money owed.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: What Happens If You Are Legally Owed Money By Someone Who Dies?
