Especially for relatives who may not have been entirely forthcoming about their debts, working through what is and isn’t owed to creditors after death can be a time-consuming and challenging process.
Different states have different laws, but in most cases, wills must enter probate first to clear any unpaid debts, and in Mississippi, that process is the same.
What Debts Could Be Owed in Probate
If the estate has significant value and/or resources, creditors may come after outstanding debts such as mortgages or unpaid loans through the probate process. The estate administrator or executor has to clear these debts and must use estate resources to do so. In most cases, only those that have been legally designated to deal with the estate can decide how assets should be used to resolve these debts. As you might expect, these debts need to be cleared before any inheritances can be issued.
If an estate is open with the court the executor or administrator must publish for creditors. The creditor has 90 days to file a claim and if they don’t the debt is forever barred which means the estate doesn’t have to pay it.
Suppose the estate is “insolvent”, as in not having enough resources to pay off debts. In that case, creditors may come after other members of the family to repay those debts, especially if debts were joint between the deceased and a living spouse or another living relative. However, there are certain assets like life insurance policies, 401(k)s, and IRAs that directly pass onto a named beneficiary bypassing probate and potential creditors.
Mississippi is not a “community property” state, so debts owed by one spouse do not become the responsibility of the other upon the former’s death.
Unpaid Debts Without A Will
Mississippi can direct your estate’s division if there isn’t a legal will present. The state divides up family members into four different groups based on the familial line with the first group (surviving spouse, children – including adopted, descendants of your children who died before you) as the “heirs at law”. Those heirs become your beneficiaries and each receives an equal share with the spouse not getting more than the children.
If an executor or administrator was never designated, the court will appoint one, usually an attorney if a family member is not available.
Creditors can still come after unpaid debts and the process would be similar based on the type of debt involved. It’s important to note that federal student loans and certain parent-first student loans are forgiven if the student or the parent who took out the loan dies. Private student loans are just like any other private debt and the issuing institution may come after the estate for amounts owed.
Generally speaking, everyone is protected by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to try to collect a debt. At that link, the Federal Trade Commission’s Consumer Division outlines a number of other rules debt collectors must abide by when pursuing balances after the account owner’s death.
Creating a valid estate and will avoid many of the headaches and difficulties that come with asset disorganization after a death. The Law Offices of Rusty Williard can help draft, formalize and execute the right plans for you and your family to ensure all unpaid debts are resolved quickly and efficiently. Call us today at (601) 824-9797 to speak with one of our qualified estate planning attorneys.