Dealing With Debt After Death
Families face a number of challenges when a loved one dies. The last thing a grieving family member needs is to be bombarded with calls from creditors trying to collect the debts of the deceased relative. It happens, nonetheless. Fortunately, the obligation of repayment generally does not extend to the deceased debtor’s family members. Instead, the debts become the responsibility of the debtor’s estate. If an estate has more debt than it does assets, the creditors simply lose out.
In Maine, there are two specific circumstances in which this general rule does not apply. First, if a family member was jointly liable on a debt during the deceased debtor’s lifetime (e.g., the family member was a joint card holder or co-signed an obligation), that family member will be responsible for that specific debt after the deceased debtor’s death. Second, if the person legally responsible for settling the decedent’s estate does so improperly, that person may be liable to any creditors who are injured by the improper action.
If a family member is receiving calls from creditors trying to collect debt for which he or she is not personally responsible, the creditor may be directed to the personal representative of the debtor’s estate and the family member may request that the creditors stop calling him or her. For a family member serving as the personal representative of the debtor’s estate, here are a few points to remember when dealing with the estate’s creditors:
- Creditors have to make a proper and timely presentation of their claims against the debtor’s estate to be entitled to payment.
Maine law provides a procedure that must be followed by creditors seeking to recover from estates. A claim can be presented by sending the personal representative a written statement of the claim, filing a written statement of the claim with the clerk of the appropriate probate court, or initiating a court proceeding against the personal representative. The law also requires that claims be presented within a certain timeframe, which varies depending on the type of claim presented and when the claim arose. If a creditor fails to properly and timely present his or her claim, the claim is forever barred.
- Under Maine law, certain types of creditors have priority over other creditors.
When an estate does not have sufficient assets to pay all of its debts, Maine’s statutes direct the personal representative to pay claims in a specific order. Certain claims, such as estate administration costs and funeral expenses, are favored over other types of claims, such as medical bills or credit card bills.
- It is best practice to avoid paying most creditors or making distributions of assets until the creditor’s claim period is over.
Although close family members are entitled to certain exemptions and there are certain creditors with priority over other creditors, it is best if the personal representative waits until the expiration of the creditors’ claim period to begin making any distributions of the estate’s assets. Waiting until all of the assets and debts are identified ensures that the personal representative does not make any improper distributions which may make him or her liable to any creditor of the estate.
- If the personal representative decides to hire an attorney to assist in administration of the debtor’s estate, the attorney fees are a priority expense of the estate.
Often, a family has to use his or her own funds to hire a lawyer to help with administration of the estate because no one has access to the deceased relative’s funds until a personal representative is appointed by the court. When that happens, the person who pays for the legal services is entitled to reimbursement from the estate and the claim is a priority claim.
Estate administration varies in difficulty depending upon the particular financial circumstances of the decedent. In the simplest cases, there may be no need to hire an attorney. In other cases, there may be little the personal representative is comfortable doing without legal advice. Whether you just need a hand getting started, need guidance in dealing with creditors, or want assistance with every step of the administration process, Rudman Winchell can help.