Whenever someone dies and leaves debts behind, a designated
person (called an executor or administrator) handles the estate. If the
deceased person did not have a will and was married, then, in many
states the spouse automatically assumes responsibility for the estate and,
becomes responsible for paying off the debts on his or her own. If the
deceased person did not have a will and did not have a living spouse, then
usually a close relative (son, daughter, mother, father, or a grandparent) is
appointed as the executor of the estate according to state law. If there are no
relatives, the state appoints an executor.
Even when an estate is worthless, the executor must
still notify all creditors of the death. Debts from a worthless estate
are generally charged off and no future collection actions are taken. However,
as stated earlier, in some states a living spouse can still be held responsible
for paying off the debts of their deceased spouse.
Always check your
state laws and always
consult with a probate attorney.
When the estate is worth something, the debts must be satisfied
according to federal and state priority. For instance, debts owed to the
federal government take first priority and then state governments debts and
after that, it depends on the types of debts and whether or not there is a
will. Assuming there is a will, its instructions are followed and then comes
secured debts, liens, judgments and finally unsecured debts. Here are two
relevant excerpts from federal code...
"Section 3466 provides: 'Whenever any person indebted to the
United States is insolvent, or whenever the estate of any deceased debtor, in
the hands of the executors or administrators, is insufficient to pay all the
debts due from the deceased, the debts due to the United States shall be first
satisfied; and the priority hereby established shall extend as well to cases in
which a debtor, not having sufficient property to pay all his debts, makes a
voluntary assignment thereof, or in which the estate and effects of an
absconding, concealed, or absent debtor are attached by process of law, as to
cases in which an act of bankruptcy is committed.' "
"Section 3467 (Comp. St. 6373) provides: 'Every executor,
administrator, or assignee, or other person, who pays any debt due by the
person or estate from whom or for which he acts, before he satisfies and pays
the debts due to the United States from such person or estate, shall become
answerable in his own person and estate for the debts so due to [269 U.S. 483,
487] the United States, or for so much thereof as may remain due and unpaid.' "
Closing out an estate when debts remain can become very
complicated very quickly! There are specific federal and state rules and
procedures that must be followed. It's always best to consult an
attorney well versed in estate law. Should you need an attorney, use
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