Horror stories have emerged in recent years regarding collection agencies hounding bereaved relatives to cover the debts of the recently departed.
A left-over credit card. A phone bill. A club membership.
Los Angeles Chapter 7 Bankruptcy Attorney wants you to understand that in most cases, debt is not inheritable. When a person dies, usually, their debts die with them, unless they can be covered by their estate. If the debts can't be covered by the estate, the estate is then considered insolvent, and creditors will have to swallow the loss.
California is a community property state, so it's possible for a widow or widower to inherit certain debts if property was jointly-owned. Even as a beneficiary, you may not be personally responsible for the debts, but it's expected they will be paid from the estate before you are able to collect anything.
This is particularly an issue with secured debt, as lenders will have the legal authority to seize certain property (the house, the car, etc.) if the debt can't be paid.
Depending on how much debt there is and what your responsibility is to it, in some cases it's worthwhile to consider a bankruptcy because you may not be able to shoulder it all on your own.
This will also apply to people who shared a joint credit card. This is often the case for spouses, but it's also fairly common for parents to do this for adult children or for children to help out their elderly parents. There is a noteworthy difference between an authorized user and a joint account, and that distinction is key. Authorized users typically won't be held liable for the debt, while a joint account holder will.
Unfortunately, there have been instances in which a person is a joint account holder and may not have even known it. Typically, this happens when the person filling out the application has added the other individual to the paperwork, but it's not revealed until after the person's death (or divorce). Checking your credit report regularly can be one way to catch this before it becomes an issue and you get stuck with a bill you can't pay.
Another important point is that if you are merely an authorized user and you continue to use the card after the account holder dies, you will more than likely be liable for the debt. In some cases, there may even be criminal implications with this, so you'll want to suspend all use of the deceased person's money or credit cards until you know what your rights are - and aren't.
Another way you may be held liable for debt after a relative's debt is if you co-signed on a loan. More often than not, if you co-sign for a loan and the primary loan holder has died, you could be held liable for that debt.
Unfortunately, even if you aren't liable for the debt, that won't necessarily stop debt collectors from incessantly calling and saying that you are - and demanding you pay up. Many people end up simply paying (if they're able) because they simply want the calls and harassment to stop.
But you shouldn't pay any such debts until you speak with a bankruptcy attorney to figure out if you're even liable for them.
There are some assets that are generally considered untouchable. These would include things like the deceased person's 401(k), certain life insurance policies and brokerage accounts. Often, these types of accounts have direct beneficiaries, and end up bypassing the estate to go straight to those individuals.
But what if your loved one was in the midst of a bankruptcy at the time they died? A number of courts have held that a death won't necessarily stop the case, and that if a person was likely to have his or her debts discharged in life, there's still a good chance the process can be completed even though he or she has passed away.
If you have questions regarding your obligation to the debts of the deceased, we can help.
Los Angeles Bankruptcy Attorney Vincent Howard at HOWARD LAW can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.