Can someone please explain exactly who debt works in relationto death? I understand it means you owe money, but if my parents die owing a bunch of money and leave stuff to me, do I inherit their debt as well? Do I have to pay their medical bills?
In: 50
This depends on the laws of your country.
I’m most familiar with Canada.
Any assets held by the deceased (aka the estate) is expected to pay their debts.
When that is gone, creditors have few options but to write it off as bad debt.
There are laws that try to limit a dying person (with substantial debt) from giving all their assets away before death to fraudulently avoid paying their debts.
There are also laws that try to limit taking on the debt of family members (in an attempt to defraud creditors by death)
Some times people in business buy partnership insurance so that the death of a business partner does not ruin your business investment. Traditionally the insurance pays out enough to “buy out” the partner’s portion of the business so that you become sole owner of the business and so your business is not ruined by being held up in probate.
When someone dies, all of their property goes into a special kind of trust called an estate. If they owed money to anyone, those people can file claims against the estate, and the estate’s assets will be used to pay those debts. If there’s anything left after paying the debts, the heirs get to inherit it. If there are debts left over, those are just discharged, and can’t be collected.
That doesn’t stop some debt collectors from trying to convince you to pay the debts anyway, but you don’t have to. You’re not responsible for their debts.
Generally, you’re not responsible for medical bills either, unless you signed the papers saying you’d pay them. Again, that doesn’t mean that hospitals won’t try to talk you into paying them.
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