A person’s debts live on after them

In today’s world, most people have debts.

Basic necessities of life result in common debts such as a mortgage on one’s home or a car loan. Credit cards become an integral part of the shopping experience, creating a revolving or sometimes even a long-lasting debt. Loans from financial institutions as well as from family or friends are not uncommon. And the desire for the luxuries of life often results in spending beyond one’s means. Debts are difficult to avoid and the liability for most of them does not go away upon a person’s death.

A requirement of notice of the probate proceeding and the right to file a claim against the decedent’s estate sent to the decedent’s creditors is an integral part of the probate process or trust administration. A personal representative appointed by the court, or the trustee of the trust is responsible for mailing the notice to all known creditors and for publishing the notice in the paper to notify any unknown creditors. Both the format of the notice as well as the publishing rules are strictly prescribed by the law and must be followed. Once the notice is properly given, the personal representative or trustee must file a proof with the court.

Once the notice is given, the creditors have a specific amount of time to file their claim with the court. If the creditor misses the deadline, the claim will be barred. Furthermore, the claim has to meet statutory requirements to be valid. Sometimes, if there are mistakes in the claim, the court can allow the creditor to amend it.

Not every filed claim may be accepted. Once the time to file claims runs out, the personal representative or trustee must review each claim for validity and either accept it or reject it and notify the claimant and the court. If a claim is rejected, the creditor can either file a suit with the court or ask the court to review the decision. The process and time for the filing of the claim, its review, and acceptance or rejection is very specific and has to be followed.

Among accepted claims, some have priority over others, like, for example, expenses of administration or funeral expenses and expenses for a last illness. The claim for compensation by the personal representative or trustee shall also be reviewed and paid. If the estate has insufficient funds, the payment of creditors’ claims may be prorated, or some claims may even be unpaid.

There is one type of debt that dies with the debtor. If the primary borrower dies, federal student loans do not become the responsibility of the decedent’s estate. Instead, they are fully forgiven upon proof of death being submitted to the student loan servicing company. However, if the co-signer passes away, the primary borrower is still responsible for the loans. On the other hand, the law does not require private lenders to cancel private loans upon the death of the borrower. If the borrower dies, the private loan company will charge the debt against the borrower’s estate and after the estate is settled, the co-signer becomes responsible for repaying any remaining debt.

While the decedent’s debts do not go away when a person dies, those debts are typically paid from the decedent’s estate. The personal representative, trustee, or even the family members are not typically personally liable for such debts. However, some actions by the personal representative or trustee, even if unintentional, can lead to personal liability for the estate’s debts. Therefore, the creditors’ claims during the probate process or trust administration have to be handled meticulously.

Natalia Vander Laan is an attorney and owns Vander Laan Law Firm in Minden