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What Happens to Debts when You Die?

Keyboard with estateplanning sign

During the estate planning process, you’re more likely to focus on allocating the property you’ll leave behind when you die, rather than the debts that will need to be paid upon your passing. It’s important to consider what sort of debts you may possess when you pass, and to try to develop a strategy for paying them off that will not cause the gifts you leave to your heirs to be excessively compromised. Read on to learn more about what happens to debt after the death of the debtor, and speak with a skilled New York estate planning attorney for help in planning your estate.

Different debts are handled in different ways

Certain debts will be extinguished at the death of a debtor, while others will live on, and the surviving debts must be paid in order of legally-established preference. For example, if a debtor dies as the sole responsible party for federal student loan debt, then that debt will be extinguished upon their death.

However, many forms of debt will result in the creditor either having a claim against the estate, or with the cosigner on the debt becoming solely responsible. If a married couple opened a credit card jointly, or the names of both spouses were on a mortgage, and one of the spouses passes away, then the surviving spouse becomes the sole responsible party for that debt. If the credit card was only in the name of one spouse, then the creditor will only have a claim against the deceased person’s estate.

Debts paid according to priority

The executor of an estate is responsible for paying the debts of the deceased person and must follow a legally-established order in paying those debts. Funeral expenses will be the first expense deducted from the decedent’s estate. After that come the costs of administering the estate, including paying the fees of the Surrogate’s Court, as well as any fees to an appraiser, accountant, or lawyer. Taxes, including income taxes, real estate, or estate taxes, also receive priority. If there were any judgments against the deceased person, either from a creditor, based on a child support award, or from the cost of benefits provided for the decedent through Medicaid, these debts will also receive priority. After these will come debts secured by property, such as car loans or mortgages. Then, unsecured debts should be paid, including medical or credit card debt.

Some assets may be shielded from collection

Certain assets within an estate are not available to creditors, if not made payable to an estate. For example, the proceeds of a 401(k) plan or life insurance policy benefits may be protected from being used as payments for the decedent’s debts, depending on how they are designated. Speak with a lawyer to find out whether there are steps you need to take to protect certain assets from creditors.

If you are in need of assistance in planning your estate in New York, contact the knowledgeable and detail-oriented Hudson Valley estate planning lawyers at Rusk, Wadlin, Heppner & Martuscello, LLP for assistance with your claim, at 845-236-4411 (Marlboro), or at 845-331-4100 (Kingston).

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