Your Loved One Has Passed and Left a Considerable Amount of Debt - What Are Your Options?

By Eric N. Allen      April 2017

It is a common misconception that heirs are responsible for the debts of a loved one when the loved one dies. Independent of some other basis upon which to impose liability for debt, an heir or child (and in many cases, a spouse) is not responsible for the debts of another. There are certain exceptions to the general rule, such as where there exist joint debts, a guaranty, a partnership, or certain spousal debts that impose an obligation on the survivor under the principal that each person has a legal duty to support their spouse.

The responsibility to pay debts of a decedent are vested with the personal representative of the decedent's estate who has the obligation to pay valid claims up to the amount of available assets in the decedent's estate. However, the mere fact that a creditor says that the decedent owed it money does not mean that the estate has an automatic responsibility to pay that debt. To begin with, there are certain specified periods of time that creditors must file claims in estates and if those time deadlines are not met, the claim will be barred. Second, under Indiana law, it is the burden of the claimant to prove that the debt is valid. The estate is at a disadvantage because the person who allegedly incurred the debt is dead and cannot testify in her defense.

As a result, some states, including Indiana, have enacted what are commonly referred to as Dead Man's Statutes. A Dead Man's statute is a law that places restrictions upon the ability of the claimant to prove its claim, if certain circumstances have been met. In Indiana, a claimant or agent of a claimant is not a competent witness to testify in a claim against the estate concerning matters that occurr ed during the lifetime of the decedent. The theory for such statutes is one of fairness: because the lips of the decedent have been sealed by death, so are the claimant's lips.

As a result of these statutes, some claims are very difficult, if not impossible, to prove. Creditors are aware of this fact and frequently seek to reach a settlement of the claim for a significant discount prior to trial. An estate administrator who understands the rules can frequently save the estate beneficiaries thousands of dollars in such situations.

Like any general rule in the law, there are many exceptions and traps. We encourage both creditors and estate administrators seeking more information about estate claims to contact the attorneys at ALLEN WELLMAN McNEW HARVEY, LLP at (317) 462-3455.