Debt after death: How an estate is executed when the deceased has outstanding debts

Staggering statistics show that American household debt had reached a record high of $16.9 trillion by the end of 2022. [1] This means that the chance of still being in debt when you die is high. Losing a loved one is always an emotionally challenging experience, but when that person is in debt when they die, managing their estate becomes more complex.

Here is a look at the differences between dying in debt with a valid will and dying intestate (without a will). We will explain the challenges that will need to be overcome, the support that is available and the most likely outcomes. However, you should always discuss your individual situation with an attorney who practices family law and estate planning in Albuquerque ( to ensure you receive legal advice that is tailored to your particular circumstances.

Dying in debt with a will

There is a defined process that will be followed when the deceased has a valid Last Will and Testament. The deceased’s attorney will support the personal representative of the will in navigating this process and handling any rules that apply to their individual circumstances.

Notification of death: When an individual passes away, their family members and designated personal representative will be notified. The executor, or personal representative, will be whoever has been named within the deceased’s will, and their role is to manage their estate.

Begin probate: The will must go through probate. This is the legal process by which the will is validated, a personal representative is appointed if not already nominated, assets are distributed and debts are paid.

Conduct inventory of assets and debts: The personal representative will create an inventory of the deceased’s assets and debts. They will consider insurance policies, bank accounts, owned property, investments and belongings as well as all outstanding debts including mortgages, loans and credit cards.

Prioritize debt repayments: There is a time limit for debtors to file claims against the estate which can be shortened by publishing a statement regarding the decedent’s death in a newspaper. Secured debts are the first to be addressed during probate. This includes mortgages and other secured loans. Funeral expenses will need to be accounted for, along with administrative costs and any unsecured debts. Property may need to be sold to repay debts secured against it. Any remaining assets will be distributed to beneficiaries as set forth in the will.

Asset distribution: Once all debts and expenses are settled by payment from the assets, any remaining assets will be distributed in accordance with the deceased’s wishes. If there is insufficient money or assets to cover the value of outstanding debts, the estate will pay out, in priority order, until the assets and money run out. Any outstanding debts will most likely be written off. Dependents may not receive any assets in this circumstance, but they will not inherit the debts.

Dying in debt without a will (intestate)

When somebody passes away without a valid will, their attorney will need to notify family members and approach the court to appoint a personal representative to manage their estate. This person will assume the responsibilities usually undertaken by a personal representative.

The key differences are:

The probate process: The deceased’s estate must still go through probate, but their assets will be distributed based on New Mexico’s intestate succession laws [2] rather than the deceased’s wishes.

Intestate succession: Typically, spouses and children will be prioritized as beneficiaries, followed by any other close relatives. In addition, there are some mandatory payments to be made to spouses which come from the estate assets before the creditors’ claims are addressed. Again, should there be insufficient money or assets remaining after debts are paid, there will be nothing to inherit but the family will not be pursued for payment of outstanding debts incurred by their loved one.

Non-financial considerations

Often, people who are in debt believe that a will opens their heirs up to being pursued for repayment of their debts and therefore choose to die intestate. This is an incorrect assumption. As detailed above, debts that cannot be repaid by an individual’s estate die with them. A will is very important to protect spouses, children and other dependents should there be funds, or items, left over to distribute. 

Wills address not only financial considerations but guardianship of minor children, thereby avoiding a situation arising where a court has to appoint a guardian in the event that both parents have passed away. It also ensures that surviving spouses and other dependents needs are met from their estate. 

In conclusion, it is essential that you take the time to consider how your family would cope if you pass away. At the Law Office of Dorene A. Kuffer, we recommend seeking legal advice and making a will that clearly identifies your dependents, your assets and your debts. 

By being proactive and transparent, you will be easing the burden on your loved ones should you pass away, and doing this early allows time to resolve as many outstanding debts as possible to ensure that your dependents will be provided for after you are no longer there to care for them. We are here to help and offer professional advice to guide you toward an appropriate resolution.