Postend on December 5, 2023

What Happens To Debt When You Die?

Dealing with the financial obligations of a loved one who has passed away can be a complex process, especially when it comes to understanding the different types of debts involved and the responsibilities of the executor. In New Jersey, navigating this territory requires a clear understanding of state-specific laws and regulations.

Seeking the guidance of a skilled New Jersey bankruptcy lawyer is paramount. Their knowledge of New Jersey’s laws can provide you with invaluable insights, ensuring that you fulfill your legal obligations while protecting your interests and the legacy of your loved one.

To navigate this challenging terrain with confidence and protect your family’s interests, seek the assistance of a skilled New Jersey bankruptcy lawyer from Straffi & Straffi Attorneys at Law. Our experienced legal professionals are here to provide the support and guidance you need during this difficult time. Let us help you navigate the legal intricacies and ensure that your loved one’s financial affairs are handled with care and in accordance with the law. Schedule a consultation today by calling (732) 341-3800.

Types of Debts

When a person passes away, their debts can generally be categorized into three main types, each of which has its own implications and priorities:

Secured Debts

Secured debts are those tied to specific assets or collateral, such as a mortgage or an auto loan. In New Jersey, these debts are typically associated with the property in question. If the deceased had a secured debt, it’s essential to determine whether the asset will be retained or sold to cover the outstanding balance.

For mortgages, those who hold an interest in keeping the property would be responsible for paying the debt or risk foreclosure. Property used as collateral in secured debts may be repossessed if the surviving family members do not continue paying off the debt.

Unsecured Debts

Unsecured debts, on the other hand, are not tied to any collateral. Credit card debts and medical bills often fall into this category. In New Jersey, these debts are typically paid from the deceased’s estate, following a specific order of priority, and are typically the last to get paid if there are remaining funds from the decedent’s estate.

  • Credit card debt – Credit card debt is typically held against the estate rather than the surviving family members of a decedent. However, if another person co-signed on the credit card, that person may be held responsible for paying any outstanding debt.
  • Student loan debt – For private student loans, co-signers may continue to be liable following a person’s debt. For federal student loans, the debts are forgiven upon the debtor’s death. It may be possible to negotiate a pardon on the debt but it is dependent on the loan’s specific circumstances. If the debt is not pardoned, it will be held against the decedent’s estate rather than against the surviving family members.
  • Medical debt – Although they are considered unsecured debt, medical debt may be passed along to a deceased person’s spouse under the Doctrine of Necessaries.

The responsibility of paying certain types of debts can differ depending on the specific circumstances of the case and the deceased person’s estate. Consulting a skilled attorney can be beneficial in staying informed about whether you have unexpectedly become liable for any debt and any options available to you.

Priority Debts

Priority debts are a special category that takes precedence over other debts in New Jersey. These may include funeral expenses, taxes owed to the state or federal government, and administrative costs associated with the estate’s management. Executors should be aware that these debts need to be addressed before other claims on the estate.

Debts and the Deceased Person’s Estate

When someone passes away, their estate becomes a central component in managing their debts. A deceased person’s assets are typically classified into two main categories: estate assets and non-estate assets. Distinguishing between these categories is vital for determining how debts are settled and what assets are available for distribution.

Estate Assets

Estate assets include property and possessions that are subject to probate and become part of the deceased person’s estate. In New Jersey, these assets are used to settle outstanding debts and distribute the remaining assets to beneficiaries as per the decedent’s will or state law if there’s no will.

Non-Estate Assets

Non-estate assets, on the other hand, are those that do not go through the probate process and are typically exempt from the deceased’s outstanding debts. These assets may include:

  • Assets held in joint tenancy with right of survivorship
  • Assets in living trusts
  • Life insurance proceeds with named beneficiaries
  • Retirement accounts with designated beneficiaries
  • Certain types of jointly held bank accounts

The distinction between estate and non-estate assets has a significant impact on debt settlement in New Jersey. Estate assets are used to pay off outstanding debts, following the priority order set by the state’s laws. Non-estate assets, however, generally pass directly to beneficiaries and are protected from creditors’ claims.

Debt Notification in Probate

In New Jersey, the probate process is the legal procedure used to validate a deceased person’s will and administer their estate. Part of the probate process in New Jersey includes notifying creditors about the deceased person’s passing and the opportunity to submit claims against the estate. This step is crucial for ensuring that all valid debts are addressed and paid appropriately.

During probate, the executor of the deceased person’s estate plays a crucial role in managing and resolving their outstanding debts. They are also responsible for various tasks related to debt management:

  • Identifying and Managing Debts: The executor must identify all outstanding debts of the deceased, including the type, amount, and creditor information. This involves thorough documentation and communication with creditors.
  • Asset Evaluation: Assessing the value of the deceased’s assets and ensuring that there are sufficient assets to cover the debts, especially secured and priority debts.
  • Notification to Creditors: In accordance with New Jersey law, the executor must provide proper notice to creditors, allowing them a chance to make claims against the estate.
  • Debt Prioritization: Executors must follow the legal order of priority when paying off debts. Priority debts, like taxes and funeral expenses, should be addressed before lower-priority unsecured debts
  • Negotiating with Creditors: Executors may need to negotiate with creditors to settle outstanding debts, potentially arranging for partial payments or debt forgiveness in some cases.

Under New Jersey law, a creditor has 9 months after a person’s death to officially file a claim on their estate. Once this time period has elapsed, the creditor’s claim can be dismissed and they may be left empty-handed. Filing a notice to the creditors is crucial as this sets the initial time upon which the creditors can file their claims.

Debt Settlement After Death

When dealing with the financial affairs of a deceased person in New Jersey, it’s essential to understand how different types of debts are settled, whether they are priority debts, how assets are distributed, and the possibility of negotiating with creditors.

When managing the estate of a deceased individual in New Jersey, it’s essential to understand the concept of priority debt settlement. Certain debts take precedence over others, and these must be addressed first in the estate administration process.

Funeral Expenses

Funeral expenses are typically considered a top priority in New Jersey when it comes to settling a deceased person’s debts. These expenses include the costs associated with the funeral service, burial or cremation, and related services. Executors and administrators of the estate should ensure that funeral expenses are paid promptly to provide a respectful and dignified farewell to the deceased.


Both state and federal taxes, including income taxes and property taxes, are considered priority debts in New Jersey. It’s crucial to address any outstanding tax liabilities promptly, as tax authorities often have significant powers to collect unpaid taxes from the deceased person’s estate.

Administrative Costs

Administrative costs associated with managing the deceased person’s estate, such as legal fees, executor fees, and other related expenses, are generally considered priority debts in New Jersey. These costs are typically paid from the estate’s assets before other debts are settled.

Judgments Against the Deceased

If there are any court judgments against the deceased individual, these judgments may also be considered priority debts in New Jersey. Creditors who have obtained legal judgments against the deceased may have the right to be paid before other unsecured debts are settled.

Unsecured Debts

While priority debts take precedence, unsecured debts, such as credit card debt and medical bills, fall lower in the priority hierarchy in New Jersey. After addressing priority debts, the remaining assets, if any, can be used to settle unsecured debts.

Understanding the order of priority when settling debts in New Jersey is essential for the proper administration of the deceased person’s estate. Executors and administrators must follow the legal requirements and ensure that priority debts are addressed before lower-priority unsecured debts. Properly managing these priorities is crucial to ensure that the estate is settled in compliance with New Jersey’s bankruptcy laws and to protect the interests of creditors and beneficiaries.

Who Can Be Held Liable For The Deceased’s Debt?

Understanding who may be held liable for the debts left behind by a deceased individual in New Jersey is essential to navigating the legal complexities that may arise.

Potential Liability of Heirs and Beneficiaries

Heirs and beneficiaries of the deceased’s estate may also face potential liability for the decedent’s debts. However, this liability is generally limited to the extent of the assets they inherit from the estate. In New Jersey, heirs and beneficiaries are not personally responsible for the debts that exceed the value of the assets they receive.

Potential Liability of Spouses

For married individuals, spouses are generally not automatically liable for their spouse’s debts solely by virtue of being married. New Jersey employs a legal framework known as “common law property” or an equitable distribution system when it comes to marital property and debt. 

Debts incurred by one spouse in their name alone are typically considered their individual, separate debts. These debts are generally not automatically transferable to the other spouse upon death, nor are they automatically inherited by the surviving spouse in probate.

However, there are exceptions to the rule of separate debts, and spousal liability may arise under certain circumstances, including:

Necessaries Doctrine: Under New Jersey law, the Doctrine of Necessaries is a legal principle that can potentially make a spouse liable for their deceased spouse’s medical and healthcare debts, even after the spouse has passed away. This doctrine is rooted in the idea that both spouses have a legal obligation to provide for each other’s basic necessities, including medical care. The extent of liability for the surviving spouse is often limited to the value of the deceased spouse’s estate. This means that the surviving spouse’s liability is typically restricted to the assets and property that they inherit from the deceased spouse’s estate. 

Mortgages: As mentioned, for mortgage debts, individuals who lived in the same residence as the decedent may continue to be liable for paying the outstanding debt. 

Joint Bank Accounts

Joint bank accounts are shared accounts held by two or more individuals, typically with the right of survivorship. This means that if one account holder passes away, the surviving account holder(s) will have access to the funds in the account without the need for probate. However, it’s essential to understand that the surviving account holder(s) may be responsible for any outstanding debts or liabilities associated with the joint account.

In accordance with New Jersey bankruptcy laws, the surviving account holder(s) may be held liable for any debts owed from the joint account, even if they were not the primary contributor to those debts. It’s important to carefully review the terms and agreements associated with joint accounts and seek legal advice if needed.

Co-Signed Loans

Co-signed loans are financial obligations where another individual (the co-signer) agrees to be responsible for the debt if the primary borrower cannot meet their obligations. When the primary borrower passes away, the co-signer in New Jersey may become liable for the remaining debt.

In accordance with New Jersey bankruptcy laws, co-signers may have a legal obligation to repay the debt, even if they were not the primary beneficiary of the loan proceeds. Survivors who are co-signers should be aware of their potential liability and take appropriate steps to address any outstanding debts.

Survivors in New Jersey should carefully review any joint accounts and co-signed loans and consult with legal professionals if there are concerns about potential liability. Understanding the legal obligations associated with these financial arrangements is essential to make informed decisions and protect one’s financial interests.

How Does a Debtor’s Death Affect Bankruptcy Proceedings?

The death of an individual can have significant implications for their ongoing bankruptcy proceedings, depending on whether they had filed for Chapter 7 or Chapter 13 bankruptcy. Here’s a breakdown of how a person’s death can affect each type of bankruptcy:

Chapter 7 Bankruptcy:

  • Automatic Stay Continues: Upon the death of a Chapter 7 debtor, the automatic stay remains in effect. This means that creditors must still cease their collection efforts, including calls, letters, and legal actions, against the deceased individual’s estate.
  • Bankruptcy Estate: In a Chapter 7 case, a bankruptcy estate is created, consisting of the debtor’s non-exempt assets. The bankruptcy trustee is responsible for liquidating these assets to pay off creditors. The death of the debtor does not alter the creation or administration of the bankruptcy estate.
  • Exempt Property: Certain property may be exempt from the bankruptcy estate, meaning it is protected from liquidation to satisfy debts. The exemption laws in effect at the time of the bankruptcy filing still apply, regardless of the debtor’s death.
  • Case Dismissal: In some cases, the bankruptcy trustee may decide to dismiss the Chapter 7 case if there are no non-exempt assets to liquidate. The deceased debtor’s dischargeable debts would then be discharged, and creditors cannot pursue the estate for payment.
  • Surviving Co-Signers or Joint Debtors: If someone co-signed or shared a joint debt with the deceased debtor, they may still be responsible for that debt even after the debtor’s death. The creditor can seek repayment from the co-signer or joint debtor.

Chapter 13 Bankruptcy:

  • Automatic Stay Continues: Similar to Chapter 7, the automatic stay remains in effect upon the death of a Chapter 13 debtor. Creditors must continue to respect the stay and cease collection actions.
  • Confirmation of the Plan: In a Chapter 13 bankruptcy, the debtor proposes a repayment plan to repay a portion of their debts over a specific period (usually three to five years). The death of the debtor can affect the feasibility of the plan, as the debtor’s income and ability to make plan payments may change.
  • Substitution of the Debtor: In some cases, a surviving spouse or family member may be able to substitute themselves as the debtor and continue the Chapter 13 plan. This substitution may require court approval.
  • Dismissal or Conversion: If it is not feasible to continue the Chapter 13 plan after the debtor’s death, the case may be dismissed, or it could be converted to a Chapter 7 bankruptcy.
  • Surviving Co-Signers or Joint Debtors: As with Chapter 7, co-signers or joint debtors may still be liable for any debts they share with the deceased Chapter 13 debtor, even after the debtor’s death.

In both Chapter 7 and Chapter 13 bankruptcy cases, the death of the debtor can complicate the proceedings and may necessitate legal action or modifications to the bankruptcy plan. It’s essential for surviving family members, co-signers, and joint debtors to consult with an experienced bankruptcy attorney to understand their rights and obligations in the wake of the debtor’s death and to navigate the process effectively.

Debt Discharge in Bankruptcy

Understanding which debts can be discharged in bankruptcy is crucial when considering this option for the deceased’s estate.

Which Debts Can Be Discharged

In New Jersey, bankruptcy can lead to the discharge of many types of unsecured debts, including credit card debt, medical bills, and personal loans. However, certain debts, such as child support, alimony, student loans (in most cases), and some tax debts, generally cannot be discharged through bankruptcy.

Impact on Survivors

Bankruptcy’s impact on survivors depends on their involvement in the deceased’s financial affairs and the nature of their obligations.

  • Survivors who were co-borrowers on the deceased’s debts may still be liable for those debts, even if the deceased’s estate goes through bankruptcy.
  • Survivors who were not directly tied to the deceased’s debts may be less affected, but they should be aware of potential impacts on the estate’s assets and distribution.

In New Jersey, considering bankruptcy as a legal option for managing the debts of a deceased person’s estate requires careful evaluation of the estate’s financial situation and legal obligations. It is advisable to consult with an experienced bankruptcy attorney to assess the viability and implications of bankruptcy in the specific context of the deceased’s estate.

At Straffi & Straffi Attorneys at Law, our experienced legal team is here to provide you with the support you need during this difficult time. Whether you’re an executor, a surviving spouse, or a concerned family member, we can help you determine the liability of debts and ensure that you navigate New Jersey’s laws effectively.

Don’t face this complex process alone. Contact us today at (732) 341-3800 for a confidential consultation to discuss your specific situation and find out how we can assist you in managing the financial affairs and debts of your loved one’s estate with care, compassion, and legal experience. Your peace of mind and financial security are our top priorities.

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