Can you inherit debt if a family member dies?

Wednesday, December 6, 2017 - 14:20

Bankruptcy, Debt and Relationships


Typically when someone dies, their personal debt does not get passed on to surviving family members. Their debt belongs to them and them alone; it is not passed on to their family members when they die.

Normally, the person would have made a will in which an Executor would be appointed. The Executor is the person responsible to manage the affairs of their estate. If a person dies without a will, a Court will appoint an administrator to manage the estate.

The basic role of the Executor is to identify, value and liquidate the estates of the deceased person, pay off their debts and distribute the remaining funds to the beneficiaries. The Executor must pay all the debts in full before he/she can distribute the funds or assets to the beneficiaries; otherwise, he/she may be held personally liable to the creditors of the deceased person. If there are not enough assets in an estate to cover its debts, the beneficiaries of the estate will not receive anything. Beneficiaries could be sued if they have received an inheritance before creditors are paid.

If someone has more debts than assets when they die, those debts do not have to be paid by anyone else as a result of the person’s death. In most cases, the only instance in which another family member would be responsible for their debt is if they co-signed a loan with the deceased person. By co-signing, both parties assume full responsibility for the loan. If one person cannot pay (for a number of reasons including, but not limited to, death), the other person carries the remainder of the debt alone.

In this circumstance, where the debt exceeds the value of the assets, the Executor may want to assign the estate into bankruptcy, so that the assets can be distributed in the appropriate manner without attracting any personal liability to the executor.

There are some assets that can flow to a beneficiary even if the deceased person has more debts than assets. These assets would not become a part of the estate of the deceased, such as life insurance policies with a designated beneficiary, real property that is registered a joint tenancy and property held in a trust for someone else.

If you have co-signed a loan with a family member, and they have recently passed away, contact our office today for a free no-obligation consultation. Together we can determine if filing bankruptcy is a good option for you. 

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