LIVING with piles of outstanding debt can become an extremely stressful and harrowing experience. Luckily, there are many fail safes in place in NJ designed specifically to help debtors who are struggling to get out from under some heavy debts. Options include loan modifications,
mortgage refinancing, debt negotiation, filing for chapter 7 debt forgiveness, and reorganizing your debt schedule via chapter 13 bankruptcy.
What happens to your debts if you pass away without having paid them back in full? For some people, this may not be a concern, but most people do not wish to leave their descendants stuck with mountains of their old debt. The question then becomes: Who pays for the
debts of the deceased?
The answer has a lot to do with whether or not the deceased lived in a community property state. In a community property state, all
earnings made by each party (married person) during the length of the marriage are considered to be
owned equally by both spouses. The same ownership applies to any debts that were acquired by
either spouse while living in a community property state.*
Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In Alaska, married couples have the ability to choose whether or not they want to assign their assets (and debts) as community property or not. As you can see, a great majority of the states in the U.S. are in fact, not community property states.
As New Jersey is
not a community property state, a
surviving spouse is not specifically held liable for the debts left behind by their late husband or wife unless the debt was something that both parties put their signature on. Therefore, a debt left behind when someone passes away will not tarnish the credit score of the spouse that survived.
However, a
deceased person's estate can be held responsible to repay creditors. This means that any assets left behind can be sold in order to pay off outstanding debts. Luckily, if the deceased has a small estate with relatively few assets, creditors will have to write off the debt.
New Jersey offers family members a simplified probate system that can be used when the deceased had no will and/or very few assets. This simplified probate system is for use when the assets of the deceased are not more than $20,000, which the surviving spouse would be entitled to in total. If the deceased had no surviving spouse, the threshold is $10,000.
If the deceased left behind a large estate, naturally all of their debts will be easy to pay off by simply selling some of their assets.
Navigating probate can be confusing, especially because you will be doing so while simultaneously dealing with grief and loss. Consulting with the deceased's
estate planning attorney may help you deal with creditors during this time. Educating yourself about the New Jersey probate process will be your best defense at keeping creditors and debt collectors at bay.
*More info at nolo.com