What Happens to a Personal Debt after Death?

Many people die owing others money. This is not surprising. A relative might have used their credit card right up until death, or they took out a personal loan which they did not pay back before passing.

What happens to these debts? The general rule is simple: a personal debt is paid out of the deceased person’s estate. However, Texas law is complicated because we are a community property state, and a surviving spouse might be surprised at what assets can be used to pay the debt.

Did You Co-Sign on a Loan?

First things first—you are responsible for loans you signed for. For example, you might have cosigned a loan but always thought of it as someone else’s debt. Now you could find out that the creditor is coming after you to pay the loan. This is perfectly valid, since you decided to sign for the loan.

If you are unsure of whether you cosigned, you should check the loan documents. If you are on the loan as a debtor, then you can be expected to pay the debt out.

How Does Probate Deal with Debts?

The assets that a person owns make up their estate at death. Generally, the estate will pay any unpaid debts the deceased owed. Creditors have a limited amount of time to make a claim on the estate, and the personal representative must analyze whether the debt is valid. If it is, she should pay it promptly. If the debt is not valid, then she can reject paying it.

For example, imagine that Megan dies at age 50. She has never been married but leaves her entire estate to her two nieces in a will. At death, Megan owes $765 in credit card debt and another $300 in a personal loan. These debts will be paid out of Megan’s estate before her beneficiaries inherit from her, so long as the debts are valid.

What Happens if the Deceased was Married?

In the above example, Megan was single, so all her debts were hers alone. Also, all her property in her probate estate was hers alone.

The analysis changes dramatically if you were married. A court will look at the following:

  • When was the debt taken out: before marriage or after marriage? If before marriage, then the debt is a separate debt of the deceased. If after marriage, then more factors need to be considered.
  • Was the debt for “necessaries”? Each spouse has a duty to support the other, so a debt for essentials like medical, dental, and legal services will probably be the surviving spouse’s responsibility.

The character of the debt will determine what property can be used to pay off the debtor.

What Property Can Be Used to Pay My Spouse’s Debts?

Texas recognizes the following property:

  • Separate. This is usually property you or your spouse obtained while single or received by gift or inheritance..
  • Special community property. This is property you acquired while married but which you exercised control over. This can include things like personal earnings and any proceeds from a personal injury lawsuit.
  • Joint community property. Both spouses exercise control over this property, which was obtained after marriage.

If you are jointly responsible for a debt, then you will need to pay it after your spouse dies. You should get in touch with the creditor to continue payments. If you default, you can be sued.

If your spouse’s debt was a separate debt, then according to Texas Probate Code Section 156 a creditor can reach the following:

  • 100% of the deceased’s separate property
  • 100% of the deceased community property subject to the sole control of the deceased
  • 100% of the community property subject to the joint control of both spouses

Furthermore, 50% of the community property subject to the surviving spouse’s control can be passed to the deceased’s successors to pay debt.

Homes are Usually Safe

Fortunately, Texas has a generous homestead allowance which exempts a person’s home from being used to satisfy a creditor’s judgment against you. You can’t be forced to sell the home to pay off your spouse’s debts (or your own debts), except for a valid mortgage on the home. Texas also has other exemptions that you should speak to an experienced attorney about.

Protect Your Inheritance; Talk to an Attorney Today

If a loved one has died, you probably have questions about probate and how debts will be handled. This article has provided general legal information, but everyone’s situation is different. For advice tailored to your situation, including on wills and trusts, please reach out to a Texas estate planning attorney today.

At Weisinger Law Firm, we will carefully go over the facts of your case to help you understand how debts will be paid. Please contact us for a free consultation by calling 210-463-5539.

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