Who Pays My Debts When I Die?

When a person dies, children or heirs often wonder if they become responsible for their parent’s debts. Generally speaking, the answer is no. The decedent is responsible for all of their debts. The personal representative pays all final debts of the decedent with money that is in the estate. Some amount of money are protected and exempted from the payment of these debts, and if the personal representative or family wish to claim these exemptions, they are required to file an inventory with the court.

Dealing with Creditor Claims

A creditor is a person or company that is owed money. The personal representative pays a decedent’s final debts out of funds in the estate. Personal representatives typically discover these debts through creditor claims during the first six month period after the decedent’s death.

Any creditor claims that are presented to the personal representative within the first nine months, which are considered valid claims, must be paid to the creditor. Creditors may still submit claims after the nine-month window closes, and they are still entitled to payment, but their claim is then satisfied from any funds left in the estate that have not already been used to meet other claims, devises, and distributive shares. NJSA 3B:22-4.

If a personal representative distributes any money from the estate before the payment of valid claims submitted within the nine-month window, then the personal representative could be personally liable for those claims. However, if the personal representative distributes any devises after the nine-month window closes, but before a creditor submits a claim, the personal representative is not personally liable for any of the assets that were delivered or distributed. Any assets that remain in the estate after that nine-month window must be used to satisfy a valid creditor’s claim, even if there aren’t enough assets to pay the entire claim.

What about claims the Personal Representative Thinks Are Not Valid?

If the personal representative receives a claim that he or she thinks is not valid, then the personal representative must inform the creditor that they intend to dispute the claim. The personal representative must send this intention to dispute within three months of receiving the claim. Creditors have three months to decide if they want to file an action against the estate for payment of the claim. However, no action can be brought – except actions for payment of funeral expenses – within the first six months following the decedent’s death.

Exemptions from Claims

Some money is exempted from the pool of money that must be used to pay the decedent’s creditors. The first is a life insurance payout that goes to a named beneficiary. NJSA 17B:24-6. A named beneficiary does not mean, “To my estate.” The life insurance beneficiary must be an actual person, such as “John Smith.” The second exemption is the personal clothing and up to $5,000 of personal property items chosen by the decedent’s family. NJSA 3B:16-5.

Some states allow for a homestead exemption and a vehicle exemption. New Jersey does not recognize these exemptions from creditors.

What happens if there isn’t enough money?

In some instances, a decedent’s debts will be greater than the decedent’s assets. When this happens, the estate is considered to be “insolvent.” There is a priority of payment for all submitted claims:

  • Reasonable funeral expenses.
  • Costs and expenses of administration.
  • Debts for the reasonable value of services by the Office of the Public Guardian for Elderly Adults
  • Debts and taxes entitled to preference under the laws of the United State or New Jersey
  • Reasonable medical and hospital expenses of the last illness of the decedent.
  • Judgment entered against the decedent.
  • All other claims, distributed in proportion to the sum due to each.

NJSA 3B:22-2 to NJSA 3B:22-32.

Where the debts exceed the assets, the heirs and beneficiaries can only claim the exemptions above to receive an inheritance from the decedent. They will not receive any other assets from the estate. It’s important to remember that unless a child co-signed any of the decedent’s debts, an heir or beneficiary does not inherit the debt from their parent.