When someone dies, the procedure for paying any debts he left behind is normally clear cut – his estate takes care of it as part of probate. This simple equation becomes more complex, however, if the decedent lived in a community property state. Texas is one such state, and to further complicate matters, its legislation recognizes more than one kind of community property.
Responsibilities of Relatives
Under federal law, relatives such as siblings, children or parents are almost never responsible for paying a loved one's debts after his death. This is true even in community property states such as Texas. An exception exists, however. If you co-signed on an account with the deceased, the creditor can legally look to you for payment. Debt collectors can contact relatives, but only once. Under the terms of the Fair Debt Collection Practices Act, they can call family to ask for contact information for the estate, but they can’t discuss the details of the bill in question, and they can't try to bully you into paying the debt yourself.
An executor is the person named in a decedent's will to settle his estate; an administrator is appointed by the court to perform the same job if the deceased doesn't leave a will or if he doesn't name an executor in his will. These individuals take over responsibility for the deceased's debts as part of the probate process. If you're appointed as executor or administrator, your tasks typically include marshaling the deceased's assets, notifying his creditors that the estate is in probate, paying legitimate creditor claims, and distributing any remaining property or assets to beneficiaries and heirs. It's sometimes necessary to sell or liquidate some of the deceased's property to make estate ends meet and to ensure that as many creditors as possible are paid.
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Community Property Law
If the deceased was married at the time of his death, this changes the complexion of his estate significantly, particularly in Texas. When gathering his assets, the executor or administrator of his estate must determine which are his separate property and which are community property. His separate property – typically anything he acquired before his marriage or by gift or inheritance – is part of his estate and is subject to liquidation to pay his debts. Under Texas law, his community property is everything else he owned, and this is also available to satisfy creditors' claims.
Texas also recognizes the concept of "special" community property. This includes assets acquired during the marriage, but which only one spouse had control over. The executor or administrator can liquidate or use the deceased's special community property to pay his debts, but his spouse's special community property typically cannot be accessed. His spouse's separate property is also safe. If the deceased's spouse inherits an asset that's encumbered by a loan, she typically takes ownership of the asset as well as responsibility for the debt.
Texas law provides for an order of priority in which the executor or administrator must pay the decedent's bills, beginning with his funeral costs and expenses incurred from his last illness and ending with "all other claims." These typically include unsecured creditors such as credit card lenders. If the decedent's estate is insolvent – he simply didn't own enough property to cover all these debts – creditors at the end of the line will not receive payment.
Beneficiaries typically receive nothing in this case, no matter what the deceased's will says about bequests. His spouse and minor children are an exception to this rule because they might receive a living allowance from the estate approved by the court. This money comes off the top of the estate before anything else is paid. If it turns out later that the estate is insolvent, the surviving spouse or the decedent's minor children do not have to return the money to the estate and, by extension, to the deceased's creditors.