What Happens with Your Debt When You Die in Maryland?

The passing of a loved one is a challenging and emotional time, and dealing with their financial affairs can be equally daunting. It’s important to understand the legal and financial processes that can happen when a person passes away and leaves behind debt.

Estate Administration Process

In Maryland, when a person passes away, their estate goes through a legal process known as estate administration often referred to as “probate.” This process includes identifying the deceased person’s assets, paying off debts and taxes, and distributing the remaining assets to heirs or beneficiaries. The Personal Representative, typically appointed by the deceased person in their will, is responsible for managing this process along with their attorney, if they choose to have one.

Priority of Debt Repayment

Debts are generally paid off in a specific order, and this priority is essential to understand. You should speak with an attorney or the Register of Wills; the order is typically: Funeral expenses and estate administration costs are the first to be paid from the estate. Secured debts, such as a mortgage, are generally addressed next however these may wait until property is sold. The property securing the debt is commonly sold to pay off the loan. Unsecured debts, like credit card balances and medical bills, are paid after secured debts. However, the Personal Representative must ensure that there are enough assets to cover these debts and they should not pay such debts until, and if, required to do so. Maryland law allows a surviving spouse to retain their personal property and exempt assets, even if the estate has debts.

Community Property Consideration

Maryland is not a community property state, which means that debts incurred by one spouse alone generally do not automatically become the responsibility of the surviving spouse. However, there can be exceptions so it’s crucial to consult with an experienced estate attorney for specific guidance.

No Inheritance Tax on Debt

Maryland does not impose an inheritance tax on debts inherited by the heirs or beneficiaries. In other words, the estate is responsible for repaying the deceased person’s debts, and the heirs are not directly liable for those debts with their own assets.

Debts That May Not Be Collected

Some debts may not be collectible after a person’s death. These include debts that were solely in the name of the deceased person and have no co-signer, as well as debts that exceeded the value of the deceased person’s estate could end up being debts that are not collected.  

Estate Insolvency

If the deceased person’s estate does not have enough assets to cover their debts, Maryland law dictates a specific order of priority for paying creditors. In some cases, certain creditors may not receive full repayment. Again, an experienced estate attorney can provide guidance in these situations.

Seek Legal Guidance

Dealing with debt after a loved one’s death can be complex, especially if there are significant assets and liabilities involved. It’s highly advisable to consult with an experienced estate attorney who can provide you with personalized guidance and ensure you follow Maryland’s legal processes correctly.

For a free, confidential conversation to discuss estate administration, or the role of a Personal Representative, contact Maryland estate attorney Stephen J. Reichert at 410-299-4959 or sreichert@reichertlegal.com.

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