The current economic climate can be challenging, with people taking out extra mortgages and credit. Unfortunately, this means that a lot of people are passing away and leaving debt behind. Just as managing the death of a loved one can be complex, so can Florida law, with several situations resulting from debt being left behind after the death of the person owing the debt.
The good news is that you do not need to manage this alone. There are trusted professional probate attorneys that are able to assist with the legal complications of managing debt left behind. Although it can be difficult to think about mortality, hiring an expert to help with estate planning before death can make the process a lot smoother for those left behind.
What Happens to Debt in Florida?
Florida Law stipulates that surviving descendants and beneficiaries of the deceased are not responsible to pay for the remaining debt. The exception is if they had a joint debt with the deceased. Even so, there are some exceptions to situations.
The following situations are typical examples of what may happen;
- Upon someone’s death, their estate becomes responsible for any unpaid debt.
- Regarding credit card debt, a child is only responsible for payment of a joint account holder.
- In the case of the child being a beneficiary of a retirement plan, creditors have no claim to the plan.
- In the case of an estate being the beneficiary, creditors do have a claim.
Transfer of Responsibility
In some instances, the descendent may wish to keep the family home despite the mortgage being in the name of the deceased parent. It is possible for the bank to transfer the mortgage, or the descendent can take on the responsibility of selling the property to pay off the balance. If the property is sold for less than what is owed on the mortgage, the bank cannot hold the descendent responsible for payment.
Which Creditors Get Paid First?
Law in Florida also stipulates which creditors should get paid first. The order of priority is as follows:
- Any administration costs incurred by the personal representative managing (and settling) the estate.
- Funeral expenses up to the value of $6,000.
- Unpaid debts and taxes under federal law. These can include the likes of Medicaid, estate taxes, and public assistance payments.
- Any medical expenses incurred within the last 60 days of the deceased’s final illness.
- Payments to a surviving spouse or dependents to a value of $18,000.
- Unpaid child support.
- Business debts.
- All other claims.
In most instances, not all creditors will be repaid. The role of the personal representative is to decide who gets paid first.
The Probate Process
The personal representative will go through Florida’s probate process whereby they will inform all creditors that there has been a death after which creditors have ninety (90) days to file a claim with the court. Once a court has drawn a conclusion regarding the validity of the claims, the personal representative can begin distributing estate funds to pay valid claims.
If there are not enough assets to cover the debts, a court order may liquidate the deceased’s assets to pay the debts, or order some of the gifts for beneficiaries to be returned to cover the debts first.
In the instance that there is not enough property to fulfill all the bequests made in the will and other expenses, there will typically be an abatement by the courts. This means that distributions to beneficiaries will be cut back to pay taxes, cover the debts and take care of items that are given higher priority by the will.
In the unfortunate situation that the estate cannot pay off all the debts, despite the assets, then the court may deem the estate insolvent. In this instance the beneficiaries will not receive an inheritance. On the positive front, although the beneficiaries will not receive an inheritance, they will not be left with the debt.
Each family and debt set up is unique. Hiring the counsel of a professional attorney will allow for guidance during an overwhelming time.