What Happens If I Owe Money to Someone Who Died? Do I Have to Pay?
By: Barry E. Haimo, Esq.
March 4, 2021
HAIMO: When a person dies, anyone who owes them money will be referred to as a creditor of the estate. So yes, you will still owe not them the money, but their estate the money.
If you owe money to someone who died, you are not necessarily relieved of that debt. If there is an existing contract of your debt, you are still legally obligated to pay the money back.
However, if the debt is not a matter of record, paying it back to the estate is more of a personal decision than a legal one. For the sake of argument, we’ll assume the debt is a matter of record and explain how the process works.
Creditors and the Probate Process
If you have a legal obligation to repay a debt, that debt does not die alongside the creditor. That means failing to pay the money back to the estate can lead to legal consequences — just as it would if the deceased person was still alive.
Part of the probate process for the deceased person’s estate includes settling his or her creditor accounts. This includes debts owed by the decedent and debts owed to the decedent.
If you owe money to someone who died, that debt is considered an asset of the decedent’s estate. These assets will first go to paying the debts of the estate. Then they will be distributed to heirs in accordance with the terms of the will, or the laws of intestate succession if there is no will.
The estate is represented by the personal representative (also known as an executor). This person is responsible for gathering and making an inventory of the deceased person’s assets — including the debt you owe to the estate.
It is in your best interest to settle the debt yourself by paying it back to the personal representative. If you do not pay the money back, the personal representative can make a demand on you and sue you in the name of the estate in order to collect the debt.
In some cases, the heirs of the estate may not be interested in collecting on the estate — particularly if the deceased person died with more debt than the value of the assets in the estate. In other cases, you may be able to come to a settlement with the beneficiaries and/or other creditors of the estate.
If you come to an agreement such as this, you should make sure the decedent’s heirs indemnify you up to the amount of money that you owe to the estate. Otherwise, other claims brought against the estate could still hold you responsible for the debt. This might include other creditors of the decedent’s, heirs that you are not aware of, or tax creditors.
Not sure whether or not you really do owe money to someone who died? Or, if you do, whether you should pay and how exactly to go about it? Contact us today to set up a consultation.
Barry E. Haimo, Esq.
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