Debts & Death

Debts & Death

By: Marc R. Carlson, July 1, 2019

Unfortunately, your debts don’t expire when you do. Most debts still need to be paid off, if possible. However, who is responsible for paying a debt depends on the type of debt. Some assets are protected from being used to satisfy a debt.

Outstanding debt may include mortgages, credit card bills, car loans, personal loans, or condominium fees – even car leases, where death is considered “early termination” of a contract.

Usually, your estate is responsible for paying any debts you leave behind. If the estate does not have enough money, the debts will go unpaid.

In general, debt collectors may not try to collect payment from your relatives and heirs. However, there are some exceptions. Co-signers and guarantors of a particular debt are responsible for that debt, and someone who held property jointly with you would be responsible for any debts on the joint property.

Creditors are paid from the part of your estate that passes through the probate court process, which means any property that passes through a will. The person who is appointed personal representative of your estate is responsible for making sure the creditors are paid. The personal representative uses estate assets to pay off the debts before any money passes to heirs. If you have significant debts, it is possible that your entire estate will be used to pay creditors.

Creditors cannot be paid from any assets that pass directly to a beneficiary. For example, a jointly held bank account would pass directly to the joint owner, and the funds in that account could not be used to pay creditors. Similarly, life insurance policies pass directly to the beneficiaries, so creditors do not have access to those funds. Whether or not a creditor can access funds in a trust depends on state law as well as what kind of trust it is.

However, some of your assets may be protected from creditors under Colorado law. Check with your attorney for updates to amounts. Here are a few examples:

Colorado Asset Protection Summary

Homestead Exemption:  If occupied as a home by the owner or the owner’s family, the homestead exemption is $60,000If occupied as a home by an elderly or disabled spouse of an owner, or elderly or disabled dependent of an owner, the homestead exemption is increased to $90,000.

Life Insurance and Annuities: If a policy of life insurance or annuity contract so states, proceeds of a life insurance policy are exempt. Group life insurance policies and proceeds are exempt.  Cash surrender value of life insurance policies are exempt up to $50,000 for writs of attachment and execution; however, for cash contributed within the forty-eight (48) prior to the writ of execution and attachment, the exemption is $0.

IRA: ERISA qualified plans, including IRAs and Roth IRAs, are exempt. C.R.S. §13-54-102(1)(s).

Charging OrderJudgment Creditor of a LLC:  The court may charge the membership interest of the member with payment of the unsatisfied amount of the judgment with interest thereon and may then or later appoint a receiver of the member’s share of the profits and of any other money due or to become due to the member in respect of the limited liability company, and make all other orders, directions, accounts, and inquiries that the debtor member might have made, or that the circumstances of the case may require.  The judgment creditor has only the rights of an assignee or transferee of the membership interest.

Judgment Creditor a Partnership: A judgment creditor may seek to charge the debtor-partner’s partnership interest with payment of any unsatisfied judgments. The judgment creditor will have the rights of an assignee of a partnership interest.

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