“When your parents die broke” by Liz Weston. (Nerd Wallet, March 15, 2018) explains why the debt of your parents may not be your debt. (The article was actually picked up by The Associated Press.)
To put things into perspective - “Nearly half of seniors die owning less than $10,000 in financial assets, according to a 2012 study for the National Bureau of Economic Research… Meanwhile, debt among older Americans is soaring.”
Follow the link to read the entire brief article - https://wtop.com/living/2018/03/when-your-parents-die-broke/
When a person dies owing more than their estate is worth, the term is an ‘insolvent estate” – the opposite of a solvent estate.
An ‘insolvent estate’ in simple terms means that there is not enough money left in a deceased person’s estate to pay all creditors. Note the emphasis on the word ALL. Perhaps there are funds to pay SOME of the creditors. In that situation there is a priority, a hierarchy (or pecking order) for creditors. Some creditors will be paid before others.
To give an example, in many circumstances the charges of a funeral home have priority over a credit card company’s claims. (In Colorado the hierarchy of claims is determined by the Colorado Probate Code)
The executor/personal representative of the estate then determines who gets paid and in what order.
How do estates become insolvent? One of the common reasons of insolvency is huge medical debt. To use a very simple example - If a parent had an estate valued at a total of $100,000, but there are medical debts of $50,000; credit card debt of $30,000, and an outstanding loan debt of $25,000 - the estate could be defined as insolvent. There is not enough money in the entire estate to pay all creditors (debts).
But keep in mind that the legal rules for debt of one’s spouse are very different from the legal rules regarding the debt of one’s parents.
It is beyond the scope of this article to define all the issues of dealing with an insolvent estate.
If you are dealing with an insolvent estate, consult an attorney if you think you may have problems with the probate process in your state. They can advise you about the legal issues of an insolvent estate.
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