You were mildly surprised to discover that your parents had significant debt when they died. This scenario makes you wonder what happens to debt when someone dies and whether their child is responsible for paying it. The simple answer is “no.” The remainder of their estate will pay off as much of your parents’ debt as possible.
This will be done by selling assets such as their home, cars, boat and other possessions. Proceeds go toward the debt. If everything goes smoothly, creditors will write off the remaining debt. However, it really is not quite that simple, especially when it comes to inherited debt.
Am I responsible for my parents’ credit card debt?
Not surprisingly, as more baby boomers die, their adult children expect to inherit at least some money. However, in some cases, parents may leave nothing but a mountain of debt.
More seniors 70 and older carry significant debt into their retirement years, still paying on mortgages and credit cards. It is alarming to learn that seniors 65 and older comprise one in eight people who file for bankruptcy. That number represents a fivefold increase from 25 years ago.
In general, a person cannot “inherit” the debt of their parents after their deaths. Nonspouse heirs and survivors typically do not have to repay the debts owed except in circumstances in which they co-signed for a loan with their parents or together applied for credit with them.
Expect contact from creditors
Also, assets inherited by heirs do not have to be used to repay an estate’s debts. These assets may include retirement investments and life insurance policies that specifically name that person as the beneficiary.
Even though you cannot inherit your parents’ debt, you likely will receive contacts from creditors bent on collecting that debt. These creditors may pressure and harass you or attempt to lay a guilt trip on you by wanting you to “do the right thing.” Do not listen to them. Instead, here is a step-by-step guide to help you navigate the situation effectively:
- Know your rights: Remember, the law does not obligate you to pay your parents’ debt unless you co-signed on the loan or credit account.
- Establish communication boundaries: If creditors contact you, request all communication in writing and keep a log of all calls, including date, time and the name of the person you spoke with.
- Familiarize yourself with the Fair Debt Collection Practices Act: If a creditor uses abusive or deceptive practices to collect debt, you can report them to the Consumer Financial Protection Bureau.
- Seek legal advice: An attorney can explain your rights under federal and state laws, and equip you with the knowledge needed to protect your assets from aggressive debt collectors.
Remember, dealing with persistent creditors can be stressful and confusing. Do not hesitate to seek professional help to protect your rights and manage the situation effectively.
Prevent future debt burdens by planning today
Discussing money matters with your parents can be uncomfortable. This is especially true when the conversation is about a time when they are no longer with you. However, these talks are essential for protecting their financial well-being and yours. Here are key strategies to consider when helping your parents plan for a secure financial future:
- Encourage them to create a will or trust. Through these documents, they can provide clear instructions for the future management of their assets and debts.
- Help them manage current finances by reviewing expenses, creating a budget and developing a debt repayment plan.
- Discuss long-term care insurance and other financial planning strategies to protect their assets and reduce the risk of accumulating significant debt.
Taking these steps today can provide peace of mind for your entire family and pave the way for a more secure financial future.
Not responsible, but some work lies ahead
Even though you are not responsible for paying your parents’ debt after their deaths, you can still expect a great amount of work ahead of you as you settle the estate. Having a skilled attorney at your side will help you sort through and overcome this financial mess left by your parents.