What happens to unpaid debt after death? It has to be handled through the probate process. A person who uses a will to handle his estate will name an executor or personal representative in the document. This individual will be responsible for the estate administration tasks. The process will be supervised by the probate court. Inheritances will not be distributed to the heirs until after the obligations of the estate are satisfied.
During probate, the executor is required to notify creditors to file a claim for payment of unpaid debts. Assets that are part of the estate will be utilized to pay any legitimate debts. What happens if there isn’t enough money in the estate to pay the unpaid debts? Under these circumstances, surviving family members are not held responsible even though the creditors will receive less than 100% of their claims.
There are some types of transfers that will not be subject to the probate process. For example, a person can add a beneficiary when opening a bank account or brokerage account. This is sometimes called a payable on death account or transfer on death account. The beneficiaries that are named on the account will have no access to the account while the holder of the account is still living. At the time of death, the beneficiary will assume ownership of the funds. Creditors can not step in to try to attach any of these assets. The same thing is true when it comes to insurance policy proceeds.
For real estate, Joint tenancy with right of survivorship is another arrangement that can protect assets from creditors. Let’s say you own your home outright, and you want your daughter to inherit the home after you are gone. You can add your daughter to the title or deed of the property. She will become a joint tenant or co-owner. After your death, she will assume ownership of the home in its entirety, and your creditors will have no ability to touch the home. There are other types of deeds that can also accomplish the same purpose.
Clearing up debts before passing away is the best way to ensure your creditors don’t come before your heirs. Our firm can help you clear up your unpaid debts before you pass away so that you can feel good about the legacy that you will be leaving behind to your loved ones. A Chapter 13 bankruptcy can make your debts more manageable, and a Chapter 7 bankruptcy can completely wipe away many different types of debt. We have locations that can be conveniently reached from Eugene, Portland, Medford, and a number of other major cities in Oregon and Washington. If you will like to schedule a free consultation, give us a call at 1-800-682-5568.