How does the probate court handle debts?

On Behalf of | May 16, 2023 | Estate Litigation

American households typically have $155,622 in debt on average. If such an individual dies with this debt, what happens to it?

The surviving heirs and spouse typically do not inherit the debt. Rather, this is a matter for the executor and the estate of the decedent.

Do any debts discharge after death?

According to Kiplinger, some debts will discharge upon an individual’s death. This includes federal student loans, which can count either for the decedent or for any child whose tuition they may have taken a loan out for.

What debts do not discharge?

On the other hand, student loans taken out in private do not discharge after death. Credit card debt also does not. Lenders may file claims against an estate in order to collect their dues. They may even tap up joint accounts owned by the decedent and their spouse or children.

Can the court pay off debts with assets?

Typically, in order to prevent the heirs of the decedent from having to take on the burden of any remaining debt, the executor and probate court will work together with creditors to repay debt via the assets of the decedent’s estate.

This can include stocks, which an executor may sell to repay debtors. It can also include any money left in a bank account.

It is possible to prevent creditor claims during probate by adding a beneficiary to their own financial accounts. Payable-on-death accounts typically do not go through probate, which can save a decedent’s loved one a lot of headaches.