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Using the deceased’s estate to pay debts

Most people hope to leave something behind for their heirs – inheritance plays an important role in helping the next generation to advance, economically.

So, what happens when the deceased leaves only bills and debts? Who is responsible for repaying these debts? Do the heirs end up getting anything at all? 

Many seniors die with less than $10,000 in assets

MarketWatch estimates that almost half of seniors who pass away do so with less than $10,000 in financial assets. It is also increasingly common for older people to still be paying on a mortgage after retirement. In fact, in people over the age of 75 years old, almost a quarter of them still have a mortgage to repay and 26 percent are paying credit card debt. 

Plus, seniors who are 65 years and older represent the fastest-growing demographic of Americans who are filing for bankruptcy. While student loans are often mentioned as the burden of millennials, many older people owe on student loans too. In fact, student loan debt increased by more than 600 percent for people 65 years and older between 2005 and 2013. 

In most instances, the estate pays off what it can of the debts remaining. These debts get paid first before heirs receive anything. Note that the estate includes non-liquid assets, which may need to be liquidated to pay the debts. Family members generally do not become responsible for these debts. 

Did you co-sign?

Nevertheless, creditors may insist that the opposite is true. For instance, people who co-signed on debts now become responsible even though one party is gone. Spouses in community property states may also be responsible for their spouse’s debts. Indiana is not a community property state. 

There are some things that do not fall into this category. Retirement accounts and life insurance policies, for instance, do not need to be used to repay debts. Those go directly to the designated beneficiaries. Again, lenders may insist otherwise.