It is a common misconception to assume that your debts do not follow you when you pass away. When a person dies with outstanding liabilities, his debts are typically owed by, and paid out of, his estate. In practice, this means that the estate’s executor or administrator is responsible for determining all valid debts, and ensuring that they are paid from the assets or property left in the estate.
The flip-side of this is that a deceased person’s liabilities are his own, and not the obligation of any third party. Even a surviving spouse is not responsible for the debts of her husband, absent specific circumstances. For example, if a spouse is a co-signatory on a loan with outstanding debt, or a joint account holder on a credit card (not to be confused with an authorized party!), a debt collector may contact her and request that she pay the balance of the debt. In community property states like California and Texas, surviving spouses are required to use jointly held property to pay the debts of a deceased spouse. However, in New York, a surviving spouse or beneficiary is not personally liable for any debt unless she agrees to assume it.
As the estate’s fiduciary, an executor has a responsibility to take inventory of the deceased person’s liabilities, evaluate their order of priority, and determine whether they should be paid in full or continue to accrue through the estate process. In most states, an executor is required to publish a notice to creditors to advise them of a potential claim, but in New York, the onus is on creditors to follow up on collecting debts. Creditors have a seven month period to file any claim against the estate; if a creditor fails to file a claim within that period, the estate is not responsible for the debt absent certain exceptions (i.e. Medicaid claims)…