Author Topic: What happens when people die with debt?  (Read 11587 times)

Credaholic

  • Stubble
  • **
  • Posts: 223
  • Location: Seattle
    • Credaholic
What happens when people die with debt?
« on: October 18, 2014, 01:20:34 PM »
I just read a case study that made me wonder - what happens when people die in debt? I know that debts are paid off by the estate, but I mean what happens when the estate is upside down? What if there's literally no savings, credit card debt, house under water, etc? Is the estate forced to sell of every family heirloom? Do the lenders just have to take their losses?

mustachianteacher

  • Stubble
  • **
  • Posts: 204
Re: What happens when people die with debt?
« Reply #1 on: October 18, 2014, 01:38:41 PM »
This happened to my BIL. He died of cancer in his 40's, and because he knew he was going to die, he spent with wild abandon. (He was divorced and had a daughter.) His estate went into probate, and we never got much information, but I know his retirement accounts went to his daughter, and as far as I know, the credit card companies cut their losses.

fb132

  • Guest
Re: What happens when people die with debt?
« Reply #2 on: October 18, 2014, 02:16:45 PM »
The debt is simply paid off by the lenders. I know this 80 year old who died, had no kids, basically he was living on his own for the last 15 years and there is nothing the lenders can do to claim their money back because no one is tied to his estate.

VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
Re: What happens when people die with debt?
« Reply #3 on: October 18, 2014, 04:43:01 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.

fb132

  • Guest
Re: What happens when people die with debt?
« Reply #4 on: October 18, 2014, 04:47:33 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.
Not sure that anyone would lend a 90 year old anything or without having someone else co-sign.

sol

  • Walrus Stache
  • *******
  • Posts: 8492
  • Age: 42
  • Location: Pacific Northwest
Re: What happens when people die with debt?
« Reply #5 on: October 18, 2014, 04:48:50 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.

Your plan is to be a parasite on society?  That's not like your plan B or anything, that's like your primary objective in life?

Remind me never to loan you money.  Or give you a job. 

VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
Re: What happens when people die with debt?
« Reply #6 on: October 18, 2014, 04:50:04 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.
Not sure that anyone would lend a 90 year old anything or without having someone else co-sign.

Credit cards.

fb132

  • Guest
Re: What happens when people die with debt?
« Reply #7 on: October 18, 2014, 04:58:23 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.
Not sure that anyone would lend a 90 year old anything or without having someone else co-sign.

Credit cards.
I'm pretty sure, credit card companies would limit a 90 year old on how much he can borrow...I could be wrong. I don't see why a bank would lend money to a person close to death.

VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
Re: What happens when people die with debt?
« Reply #8 on: October 18, 2014, 05:02:44 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.
Not sure that anyone would lend a 90 year old anything or without having someone else co-sign.

Credit cards.
I'm pretty sure, credit card companies would limit a 90 year old on how much he can borrow...I could be wrong. I don't see why a bank would lend money to a person close to death.

Age is one of the categories protected by the Equal Credit Opportunity Act.  I would love for creditors to deny me credit based on age - lawsuit city baby!   
« Last Edit: October 18, 2014, 05:11:30 PM by VirginiaBob »

VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
Re: What happens when people die with debt?
« Reply #9 on: October 18, 2014, 05:24:54 PM »


Remind me never to loan you money.  Or give you a job.

you have already done both, and will continue to do so, for I work for the government!

sarah8001

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: What happens when people die with debt?
« Reply #10 on: October 19, 2014, 05:38:52 AM »
My dad died with significat debt. My stepmom left the country and walked out on every penny of it. The collectors called us a few times, we told them, you want money...we want our dad. Guess we both lost. I think they eventually gave up. Interestingly, my stepmom, after years of lying, procrastinating, bullshitting, etc, finally signed over my dad's property to us, per his wishes before death. I wonder if the credit card companies have any claim against it? It's probably worth 5-10k (40 acres of severely fire damaged land with no power, no well, no phones, and no dwelling).

VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
Re: What happens when people die with debt?
« Reply #11 on: October 19, 2014, 06:28:04 AM »
My dad died with significat debt. My stepmom left the country and walked out on every penny of it. The collectors called us a few times, we told them, you want money...we want our dad. Guess we both lost. I think they eventually gave up. Interestingly, my stepmom, after years of lying, procrastinating, bullshitting, etc, finally signed over my dad's property to us, per his wishes before death. I wonder if the credit card companies have any claim against it? It's probably worth 5-10k (40 acres of severely fire damaged land with no power, no well, no phones, and no dwelling).

Once the property is signed over to you, as long as it didn't have any active liens against it, you should be good to go.

weston

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: What happens when people die with debt?
« Reply #12 on: October 19, 2014, 06:45:59 AM »
My dad died with significat debt. My stepmom left the country and walked out on every penny of it. The collectors called us a few times, we told them, you want money...we want our dad. Guess we both lost. I think they eventually gave up. Interestingly, my stepmom, after years of lying, procrastinating, bullshitting, etc, finally signed over my dad's property to us, per his wishes before death. I wonder if the credit card companies have any claim against it? It's probably worth 5-10k (40 acres of severely fire damaged land with no power, no well, no phones, and no dwelling).
Not enough info  to accurately answer. Usual caveat applies. This is very state specific and should be addressed to an experienced probate attorney in your state. If I was the attorney the first question I would ask would relate to how your stepmom got the authority to convey the property to you. Was the estate probated? Was she on the deed jointly with your dad and if so did they hold it as tenants by the entireties, or joint tenants with right of survivorship or was it held some other way?

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: What happens when people die with debt?
« Reply #13 on: October 19, 2014, 06:59:13 AM »
I mean its pretty simple to do I have over 100 k in credit at my disposal now and I doubt that would change for me at 90.

sarah8001

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: What happens when people die with debt?
« Reply #14 on: October 19, 2014, 07:53:33 AM »
My dad died with significat debt. My stepmom left the country and walked out on every penny of it. The collectors called us a few times, we told them, you want money...we want our dad. Guess we both lost. I think they eventually gave up. Interestingly, my stepmom, after years of lying, procrastinating, bullshitting, etc, finally signed over my dad's property to us, per his wishes before death. I wonder if the credit card companies have any claim against it? It's probably worth 5-10k (40 acres of severely fire damaged land with no power, no well, no phones, and no dwelling).
Not enough info  to accurately answer. Usual caveat applies. This is very state specific and should be addressed to an experienced probate attorney in your state. If I was the attorney the first question I would ask would relate to how your stepmom got the authority to convey the property to you. Was the estate probated? Was she on the deed jointly with your dad and if so did they hold it as tenants by the entireties, or joint tenants with right of survivorship or was it held some other way?

Oh, sorry, I was just musing. I'm going to see an attourney about it later this month. NO WAY am I sorting out that can of worms myself - my stepmom never dealt with any legal repercussions after my dad died; she had a secret funeral (she still berates us for not attending, we didn't even know my dad's ashes were buried in the US until a Uncle posted FB pics of his grave) then left later that month. No probate, nothing. Just flew away. We tried to sort it out, but there was no will, no one would talk to us, our names weren't on any accounts, what a mess! She quitclaimed the property to me a few days ago. If you're gonna die, die with a plan!

Davidamelson

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: What happens when people die with debt?
« Reply #15 on: October 19, 2014, 08:25:25 AM »
I sold life insurance for a short time, and one thing that stuck with me is "if you're going Rosie, die with a plan!"

Overseas Stache

  • Stubble
  • **
  • Posts: 130
  • Age: 34
  • Location: Democratic Republic of Congo
Re: What happens when people die with debt?
« Reply #16 on: October 19, 2014, 08:57:46 AM »


Remind me never to loan you money.  Or give you a job.

you have already done both, and will continue to do so, for I work for the government!

Lol. Thank you for making me laugh, VirginiaBob.

weston

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: What happens when people die with debt?
« Reply #17 on: October 19, 2014, 11:14:37 AM »
.
[/quote]

Oh, sorry, I was just musing. I'm going to see an attourney about it later this month. NO WAY am I sorting out that can of worms myself - my stepmom never dealt with any legal repercussions after my dad died; she had a secret funeral (she still berates us for not attending, we didn't even know my dad's ashes were buried in the US until a Uncle posted FB pics of his grave) then left later that month. No probate, nothing. Just flew away. We tried to sort it out, but there was no will, no one would talk to us, our names weren't on any accounts, what a mess! She quitclaimed the property to me a few days ago. If you're gonna die, die with a plan!
[/quote]

No need to apologize. Hope I didn't sound too cranky. My response was triggered more out of concern about VirginiaBob's answer as opposed to your original question. Didn't want you believing you were "good to go" without hearing the voice of caution since I thought your fact pattern was laden with red flags. To me, your posting indicates  a very real possibility that your stepmom was more than happy to sign over a property that she had no legal title to and thus you also do not now have legal title to that property. Having a property signed over to you doesn't give you a damn thing if the person doing the signing did not have legal title to the property.

 But again that is only an opinion based upon my own limited experience and very sketchy facts. Please ignore my (and everyone else's) opinion and rely upon the advice and opinion of your lawyer. Good luck. You'll probably be pleasantly surprised how a can of worms can be resolved with relative ease by someone who specializes in those problems.

LLCoolDave

  • Stubble
  • **
  • Posts: 103
  • Age: 37
  • Location: Vagabonding
Re: What happens when people die with debt?
« Reply #18 on: October 19, 2014, 01:59:26 PM »
If an estate is insolvent then the creditors have to eat the losses unless there is a co-signor for property or any loans.  If the estate is solvent but has debt then the debt needs to be paid.

hwstar

  • 5 O'Clock Shadow
  • *
  • Posts: 24
Re: What happens when people die with debt?
« Reply #19 on: October 19, 2014, 02:48:22 PM »
If the estate can't pay the debt, it gets written off by the creditor. They will try as hard as they can to collect, and they will try to get family members to pay by making it a "guilt trip". Family members have no obiligation to do so.

One caveat:  in states with falial support laws (e.g. California), the state could conceivable come after the family members to pay for nursing home care if the deceased was indigent. This was in the news recently.

Be thankful you live in the USA. There are countries in the world where your family inherits any debt (e.g. Taiwan).

surfhb

  • Guest
Re: What happens when people die with debt?
« Reply #20 on: October 19, 2014, 02:54:46 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.

Stealing!?  Wonderful way to go out

fb132

  • Guest
Re: What happens when people die with debt?
« Reply #21 on: October 19, 2014, 02:56:07 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.

Stealing!?  Wonderful way to go out
He is stealing off credit card companies :p Not that I feel sorry for them

swiper

  • Bristles
  • ***
  • Posts: 254
  • Age: 38
  • Location: Ottawa (Gatineau)
  • swiping ottawa
Re: What happens when people die with debt?
« Reply #22 on: October 19, 2014, 03:10:08 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.

Stealing!?  Wonderful way to go out

I know, what a terrible idea. Get some dignity man!

VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
Re: What happens when people die with debt?
« Reply #23 on: October 19, 2014, 03:15:32 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.

Stealing!?  Wonderful way to go out

Stealing?  Quite the accusation!  I was planning to pay it all back at 100 years old.

rocketpj

  • Pencil Stache
  • ****
  • Posts: 717
Re: What happens when people die with debt?
« Reply #24 on: October 19, 2014, 03:16:53 PM »
That's my plan if I hit 90 years old.  Sell everything off, transfer to my kids, and run up $100k in unsecured debt.

Surely you folks see he is joking?

I don't see myself running up big debt at that point, but I used to joke that I would start smoking again on my 90th birthday.  And I might try some of those drugs I was too nervous to fool around with as a young person.

That said, I might just continue to enjoy a nice glass of wine on my porch.

weston

  • 5 O'Clock Shadow
  • *
  • Posts: 50
Re: What happens when people die with debt?
« Reply #25 on: October 20, 2014, 08:20:50 AM »
  If the estate is solvent but has debt then the debt needs to be paid.
  Again this varies tremendously depending on state law, and generalizations like this are very dangerous. In many states the estate can be extremely solvent and the debt still does not have to be paid if the solvency arises out of assets of the estate that are exempt under state law. 

For instance I live in Florida. If I clutch my chest and keel over while perusing the Money Mustache forum and leave outstanding debts the estate will include such things as my homestead, $20,000 worth of household goods, furnishings and appliances. An additional $1,000, and 2 motor vehicles (I know, I know I should have sold one and bought a bike) all of which are exempt from creditors. Considering that my homestead has more than half a million dollars in equity in it combined with the other exemptions my heir (wife) will be left with plenty of money to spoil the next husband.

An extremely solvent estate loaded with assets exempt from creditor claims. My wife (and the next husband) get a small fortune. The creditors get nothing despite the solvency of the estate.

Credaholic

  • Stubble
  • **
  • Posts: 223
  • Location: Seattle
    • Credaholic
Re: What happens when people die with debt?
« Reply #26 on: October 20, 2014, 09:33:40 AM »
This is all a bit disheartening. Not that I want to work the rest of my life servicing debt, but for those that do, it seems the consequences could be a bit worse.

former player

  • Magnum Stache
  • ******
  • Posts: 4421
  • Location: Avalon
Re: What happens when people die with debt?
« Reply #27 on: October 20, 2014, 10:31:35 AM »
Unless there is something specific in your country's or state's law which protects certain assets, the general rule is that the executors/administrators of an estate have to pay all a deceased's debts before the remaining assets in the estate can be passed on to the beneficiaries (and only an executor/administrator is able to give the beneficiary good title to those assets).   The sale of assets may include selling heirlooms, and anything specifically left to someone in a will, but the first assets used to pay off debts will be those which are part of the residuary estate - ie the "anything else I own at death goes to X" part of a Will.

If there are not enough assets to cover all the debts, the proceeds of the asset sale are shared between the debtors.  If the deceased gave away assets before death and then died with more debts that assets, the executors/administrators may be able to claim the assets (or the value of the assets) back from the recipients of the gifts.

But yes, some people die in debt with no assets to sell, and then the debt (in common-law countries) dies with the person.  So a family cannot "inherit" debt, although they may be left with nothing.  Sometimes a family will voluntarily pay a deceased debts, as a matter of family pride, but there is no legal obligation for them to do so - except apparently in Taiwan, which I did not know - thank you, hwstar.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8620
  • Registered member
Re: What happens when people die with debt?
« Reply #28 on: October 20, 2014, 12:50:08 PM »
You are reborn as a snail

Clever Name

  • Stubble
  • **
  • Posts: 127
Re: What happens when people die with debt?
« Reply #29 on: October 20, 2014, 08:35:48 PM »
This is all a bit disheartening. Not that I want to work the rest of my life servicing debt, but for those that do, it seems the consequences could be a bit worse.

What exactly did you expect? How can there be consequences for a dead person?

chaitea

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: What happens when people die with debt?
« Reply #30 on: October 20, 2014, 11:24:45 PM »
I think the lot of you are misdirecting your anger. You shouldn't get mad at the person, you should get mad at the system that allows you to do this.

And on that note, the credit system which is designed to take advantage of you is exploited in return. I'm not saying it's fair or ethical. But if person A takes out a credit card and doesn't pay off their entire balance they are subjected to 18.99% interest or whatever it is. The creditors abide by the system and collect that. And by their same system, they forgive debt after death. How much they forgive may be dependent on what they were willing to loan out. But the "bad debt" amount is built into their interest rate calculation. So I wouldn't feel too bad about.

If we all started doing it, they would have to fix the system.

MelodysMustache

  • 5 O'Clock Shadow
  • *
  • Posts: 98
Re: What happens when people die with debt?
« Reply #31 on: October 20, 2014, 11:56:59 PM »
If you are in a community property state the spouse will inherit the debt.  That happened to me when my spendthrift husband died in California.  It sucked.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8620
  • Registered member
Re: What happens when people die with debt?
« Reply #32 on: October 21, 2014, 01:17:58 AM »
If you are in a community property state the spouse will inherit the debt.  That happened to me when my spendthrift husband died in California.  It sucked.

Imma ring the prenup bell again

rockstache

  • Walrus Stache
  • *******
  • Posts: 5822
  • Age: 2015
  • Location: Northeast
Re: What happens when people die with debt?
« Reply #33 on: October 21, 2014, 11:10:15 AM »
There's always money in the banana stand.

NoraLenderbee

  • Handlebar Stache
  • *****
  • Posts: 1255
Re: What happens when people die with debt?
« Reply #34 on: October 21, 2014, 11:55:40 AM »
When my German mother-in-law died (in Germany), her kids had the choice of claiming her (modest) estate or refusing it. If they claimed the estate, they also got her debt. Since she had very little money and a lot of debt, they decided to refuse it all. It's very different from the system in the US.

Credaholic

  • Stubble
  • **
  • Posts: 223
  • Location: Seattle
    • Credaholic
Re: What happens when people die with debt?
« Reply #35 on: October 21, 2014, 10:29:46 PM »
There's always money in the banana stand.

This forum needs a like button.

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1478
  • Location: West-by-god-Virginia
Re: What happens when people die with debt?
« Reply #36 on: October 22, 2014, 04:41:28 AM »
My wife was a joint tenant on all of her mother's assets.  When MIL died, my wife automatically got all of the assets with no probate, will, etc.  DW promptly gave half the assets to her sister, and she (we) remodeled our house and put a good chunk away in mutual funds.  A year later, we got a bill from the hospital (addressed to MIL).  We ignored the bill, and the hospital never made an issue of it.  But I always wondered if they could have pursued it given that the assets were held in joint tenancy.

former player

  • Magnum Stache
  • ******
  • Posts: 4421
  • Location: Avalon
Re: What happens when people die with debt?
« Reply #37 on: October 22, 2014, 11:24:29 AM »
My wife was a joint tenant on all of her mother's assets.  When MIL died, my wife automatically got all of the assets with no probate, will, etc.  DW promptly gave half the assets to her sister, and she (we) remodeled our house and put a good chunk away in mutual funds.  A year later, we got a bill from the hospital (addressed to MIL).  We ignored the bill, and the hospital never made an issue of it.  But I always wondered if they could have pursued it given that the assets were held in joint tenancy.
The hospital can only claim against the estate of the dead person, and in a joint tenancy your MIL's share never goes into her estate: immediately on her death the property is owned by your wife.  So the basic rule is that the property cannot be claimed.  The same would be true for money in a joint bank account.  However, if the debt was big enough and the hospital can show that it is legally due, it could be possible for the hospital to put your MIL's estate in bankruptcy.  A bankruptcy severs a joint tenancy, even retrospectively, so the hospital could then make a claim against the share of the property owned by your MIL.

I suspect however that because a joint tenancy does not have to be a part of probate, the hospital may never have known about it and that they might be able to claim against it.

Dicey

  • Senior Mustachian
  • ********
  • Posts: 10433
  • Age: 61
  • Location: NorCal
Re: What happens when people die with debt?
« Reply #38 on: October 22, 2014, 11:33:12 AM »
I mean its pretty simple to do I have over 100 k in credit at my disposal now and I doubt that would change for me at 90.

Simple doesn't make it right. I doubt that one would change their moral character that late in their life. Surely VirginiaBob was just making what he thought was a joke.