When Someone You Love Dies, and You Inherit the Debt, What Tools Can You Use to Fight Back?

As if coping with grief after the loss of a loved one isn’t difficult enough, you might be suddenly saddled with the person’s debts. However, a debt collector might attempt to collect a debt from you even if it’s not your responsibility. Increasingly, seniors face this challenge, according to a study from the University of Michigan Law School that found that people over the age of 65 are the top age bracket that files for bankruptcy. In addition, this age group now owes $18 billion in student loans, which exploded more than 600 percent from 2005 to 2013.

"Chaunce! It's for you!"

“Chaunce! It’s for you!”

If you find yourself in the difficult predicament of dealing with debt after a loved one dies, keep the following tips in mind.

  1. The estate pays the bills. Usually, family members will not be held personally responsible. Once debts are paid, the estate distributes money to the beneficiaries. In addition, the estate must pay debt in a certain order. Taxes, secured debts and funeral expenses generally come first, while credit card debt is usually a low priority.
  2. Creditors must seek repayment through the estate. Life insurance policies, IRAs, 401(k)s and other retirement accounts are likely exempt, especially when a person is the designated beneficiary. The only exception is usually taxes, although one financial advisor said that he had never known the IRS to pursue taxes from these sources.
  3. However, if you cosigned on a loan or are joint owner, then you will probably be liable. This is true even for very old credit cards or loans. Another exception is community property states, although Colorado is not one of them.
  4. If the deceased person owed credit card bills, you might start fielding calls from collection companies. You will need to find out whether the debt is valid, whether it falls within the statute of limitations and whether you are responsible. If debt collectors harass you, you can tell them to stop and write a letter and submit a complaint against them.

Fighting Debt when Someone Dies

Wading through the legal technicalities of debt and a person’s estate can overwhelm someone under the best of circumstances. When a loved one dies, you might struggle to cope with the financial aftermath. You do not need to handle this alone. Call us at 720-398-6088 for ideas on how to fight debt when a loved one dies.