Who is Responsible for My Loved One’s Unpaid Bills After Death?

May 6, 2021   -  

Who is Responsible for My Loved One’s Unpaid Bills After Death?

One of the last things you want to think about after a family member or friend passes away is their debt. However, determining who is responsible for their unpaid bills after death is an essential part of settling their estate. This article will help you understand: 

  • Who pays the bills
  • What kind of bills are involved
  • How to take charge of the bill-paying process
  • The importance of estate planning 

The sooner you can address those legal and financial concerns, the sooner you will be able to mourn their loss, process your grief, and close the chapter on their lives.

Who is Responsible for Paying Unpaid Bills?

The most direct answer is the estate of the deceased person—not the family. No matter their financial status, everyone has an estate in the legal sense, and the person in charge is known as the executor or administrator. That person could be named in the will, be the surviving spouse, or eldest next-of-kin. 

To clarify, the executor does not have to pay those bills personally. Instead, they are responsible for ensuring that the bills get paid by the financial holdings of the estate. It could be as simple as using the terms of the deceased’s life insurance policy to take care of the remaining funeral, medical, and utility bills. It could also be as complex as working through a detailed estate plan to account for all outstanding debts, loans, and other various bills.

These discussions happen as part of the probate process, especially when the estate has no will. If there are outstanding bills, the courts must help determine how the estate will make those payments. This stage can take months and years, depending upon the size of the estate and the size of the outstanding bills.

Exceptions to the Estate Handling the Unpaid Bills

Of course, there are exceptions to every rule, especially when it’s a financial or legal situation of this magnitude. Hence, someone besides the estate can be held responsible for the bills in two scenarios:

  1. If you live in a community-property state
  2. If you cosigned a loan with the deceased person

What is a Community Property State?

While we typically think of this concept during divorce proceedings, they also apply when one person in a marriage dies before the other. In a community property state, the couple owns and controls everything jointly, even if only one person earned the income that paid for the items. Thus, if one person dies with debt, the surviving spouse is still responsible for that debt. This is true even if they made that purchase without the signature or involvement of the other person.

Yes, the spouse can pay those debts using the terms of the estate described in the last will and testament, but they must also pay them even if there are no available funds in the estate. 

What is a Cosigned Loan?

The name is relatively straightforward: it’s any loan you signed to help someone make a purchase. Such items typically include student loans, vehicles, and property. 

In most cases, student loans are canceled when the student who took the loans passes away. Having a cosigner on the loan can complicate the situation and require legal intervention.

With vehicles and property, the family or executor can sell both to the lender to cover the outstanding debt. If the survivor who cosigned the loan still uses the car or home, you must make provision to continue paying on those loans so that they aren’t repossessed to cover the debt.

What Types of Debt Must Be Paid?

Whether it’s the estate, the spouse, or the cosigner, someone must pay your loved one’s debts when they die. There are two primary sorts of debt:

  • Secured – the loan was backed by collateral, including mortgage, cars, and real estate
  • Unsecured – the loan wasn’t backed by a mortgage, including credit cards, medical bills, utility bills, college loans, and more

What Should I Know About Secured and Unsecured Debt?

In the world of estate law, the difference between them in estate law is simple: the holders of unsecured debt can’t recoup that debt if the estate cannot pay it. But with secured debt, the lender can claim the collateral to pay off the debt; i.e., they can repossess the house to pay off the mortgage.

However, you can’t escape unsecured debt completely when your loved one passes away. Instead, the estate can pay those debts outright, or your family can arrange with the credit card company to make structured payments on those bills (often in a lower amount) to pay off the debt.

Additionally, if the estate is responsible for the debt, those bills must be paid in full before the probate process issues inheritances to the beneficiaries. However, the lenders cannot draw from living trusts, life insurance, retirement accounts, and other such arrangements to cover secured or unsecured debts.

How Do I Become an Authorized User on the Accounts?

As discussed earlier, someone must pay those unsecured debts, whether it’s the estate’s executor or the assigned next of kin. In either case, you must now become an “authorized user” on the account. Unless your loved one gave you access to their accounts before they passed, you need to follow this basic process:

  • Learn all of the places and institutions where they paid bills
  • Contact each respective company describing your need to be added to the account
  • Provide any necessary information to show proof of intent and prevent fraud

Once you have gained approved access to the account, you should pay any outstanding bills and provide proof of the deceased so that you can close the account.

What If Can’t Afford to Cover the Unpaid Bills?

It all goes back to the earlier discussion of secured and unsecured debt. If you cannot legitimately pay the outstanding unsecured debt left by a loved one who passed away, you will not have to pay it. Admittedly, you might have to secure the assistance of an attorney or accountant working pro bono to state your case. Still, the deceased’s family should not be held responsible for those debts (unless you live in a community property state).

But when it comes to secured debt, your family could face repossession and foreclosure if you cannot cover the debts left by the deceased. You might have to make some tough decisions about what you’re willing to sell or part with to pay off what your loved one owed.

Thorough Estate Planning Helps with After-Death Debt

Whether it’s a sizable estate with an assigned executor or you live in a community property state where the spouse is responsible, everyone should always have precise end-of-life planning in place. With clear guidelines and directives in place, you can understand your loved one’s wishes, the state of their finances, and what should happen after they pass away. Doing so prepares the family and friends for the next steps, especially when it comes to significant financial considerations.

You should encourage your family members to speak with an accountant and attorney about these situations so they can prepare an estate plan and last will and testament. Because stressing about your loved one’s unpaid bills after they pass away is not how you want to hold them in your memories.