Are Heirs Responsible for Their Loved Ones’ Debts? 

Law Office of Geoffrey Fong Jan. 12, 2022

Couple managing the debt.A loved one’s death can be a painful and confusing time. It can get even more confusing when having to deal with financial matters, including outstanding debt. What happens to a person’s debts when they pass away? 

At the Law Office of Geoffrey Fong, a skilled estate planning attorney is ready to guide you through the process of handling your loved one’s debts after their passing. If you live in Rocklin or the surrounding areas in California, including Roseville, Folsom, and Citrus Heights, contact the firm today to set up a one-on-one consultation. 

What Happens with Someone’s Debts when They Pass Away? 

Contrary to popular belief, family members do not “inherit” debts. A person’s debts remain theirs even after their passing. However, the debts must be settled somehow. The deceased person’s estate handles outstanding debts. That is where things might get tricky. 

Please note that others may inherit debt if it is shared in some way. For instance, being a co-signer on a loan makes the co-signer liable after the person’s passing. Similarly, having joint debt, such as a mortgage, can cause someone to inherit debt. The court must allow creditors to file claims on outstanding debts during the probate process. Once the probate process has cleared debts, the remaining assets in the estate may be transferred over to beneficiaries. 

The estate’s executor or administrator can work with creditors to repay debts without significantly affecting the deceased individual’s estate. For example, outstanding credit card bills can be paid off using insurance payouts. These agreements must be negotiated following the deceased person’s death before creditors file court claims. 

What Is the Estate Administration Process in California? 

The estate administrator (executor) is the person in charge of supervising the deceased individual’s estate until the probate process finalizes. Probate is necessary even if the person dies with a will in place.  

The estate administrator must make a final tally of the estate’s assets and liabilities. Doing so is important since the court will require a full financial statement during the probate process. At this point, the estate administrator can proactively take care of debts. For example, the estate administrator can reach out to credit card companies and mortgage lenders to notify them of the person’s passing. From there, the two sides can work together the negotiate debt repayment. 

Once the initial financial statements are in place, the beneficiaries can submit the paperwork to probate court. During the process, the court will ask the parties to settle debts before proceeding. Having debt repayment plans already in place can greatly speed up the probate process. Failing to secure debt repayment plans will undoubtedly slow down the entire process. 

Settling a Deceased Loved One’s Debts in California 

There are various ways in which relatives can settle a deceased loved one’s debts in California: 

  • Payment plans. Relatives may negotiate payment plans if the estate does not have enough assets to cover outstanding debts. For example, substantial personal loans or credit card debt can be renegotiated into a payment plan to ensure their repayment.  

  • Repay the debt directly. The estate administrator can use the deceased person’s own funds to cover the outstanding debt. For instance, the administrator can use those funds to pay off outstanding credit cards or personal loans if they have a joint signature on a bank account. 

  • Liquidation. The estate administrator can liquidate certain assets to repay debts. For example, the estate administrator can sell vehicles to cover funeral expenses or personal loans.  

  • Insurance or retirement account payouts. Using insurance or retirement account payouts is another popular way to repay debts. Since these payouts may take some time, it is wise for estate administrators to proactively work with creditors to avoid claims on the estate during the probate process. 

What to Do About Creditor Calls 

Unfortunately, calls from creditors may be inevitable at first. That is generally the case when accounts go unpaid for more than two months. There are two actions relatives might take in this situation. 

  • Talking to creditors and solving the matter is the best way to stop annoying calls. However, debt collectors may be under pressure to get money immediately. That may not be possible, especially if family members do not have funds to cover any part of the debt. 

  • Contacting an estate attorney to deal with creditors is a great option. A professional estate administration attorney can work with the creditor to end calls. If calls persist, an attorney can request a restraining order to cease calls. 

Keep in mind that working with a skilled estate lawyer can help you find a favorable path forward, no matter your personal or financial situation. 

Finding the Right Estate Administration Attorney in California 

No one should have to go through the estate administration and probate process without strong legal support. Contact an attorney at the Law Office of Geoffrey Fong today to start pursuing solutions.