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Who handles debts after you die

On Behalf of | Mar 14, 2023 | Probate & Estate Administration |

Debt is a common feature of the economic lives of many Kentucky residents. Credit card, mortgage and car payments are part of their monthly budgets. If someone dies owing money to creditors, legal procedures are in place to resolve the debt.

Paying debts through your estate

After you die, the court examines your estate through a process called probate. During this legal procedure, a judge reads your will if you have one and hands over the distribution of assets to your named executor. This person uses your estate to pay your secured and unsecured debts.

If you do not have a will, the court will appoint someone to oversee the distribution of your estate. Part of the administrator’s job will be to pay off your debts and outstanding taxes. If you have insufficient funds to pay off your creditors, the court will decide which debts to pay.

Inherited debts

The probate process handles most of your outstanding debts. However, some loan contracts can pass debts to your family members or business partners.

Loans with a joint signer do not go through probate but transfer responsibility to the other individual. If you took out a loan to fund a business with a partner, they must pay off the debt. A joint loan to pay for a house also falls into this category.

To lower the risk of default, some banks will only issue loans if a second party cosigns. As part of the arrangement, they agree to pay the debt if you cannot.

Planning for the future

While the court has procedures for handling your debts, it makes it easier for your loved ones to have a plan in place in the case of your death. Drafting a will or trust minimizes the decisions they must make after you are gone.