What happens to a debt when the debtor dies?

 

It is difficult to ask about outstanding payment when someone dies. But unfortunately, you cannot ignore unpaid delinquency because of the death of a person. The question on your mind would be what happens to the debt when the person who owes it dies?

Well, it depends on multiple things. Firstly, every state and country and their regulation when it comes to collecting a debt after a person dies. Secondly, the situation also differs when the debt is owed by an individual as compared to when a business owes it.

Due to the complicated and difficult nature of this situation, the best thing for a business is to hire a collection agency in San Francisco. They know the laws, and they have the right amount of tact to recover the money without breaking any rules or ethical boundaries.

Usually, when an individual owing the debt dies, it passes on to the family or the co-signer on the form. When it comes to a business, it depends on the nature of the business. So, let's see.

1. A sole proprietorship (Sole Entrepreneur)

When the sole owner of the business dies; the whole business is the property of the estate or the heir of the owner. If the heirs are unable to keep it afloat or don’t want to, the liquidation of the assets of the brand will commence paying off the unpaid debt. The remaining money is distributed as per the will.

If you are a sole proprietor, make sure you inform a lawyer about the debt.

2. Limited liability company

The agreement that governs the operation of a limited liability company will decide what happens in case one of the partners dies. If the partners decide to continue the firm, they will bear the responsibility of paying the debt as well.

If the agreement doesn’t say anything about it, the company will be under the state’s law, and it will decide what happens. Most state laws will liquidate the assets to pay off the debt.

3. S corporation or corporation

Corporations continue even after the owner dies. The estate becomes the owner then, or even the previous owners who had a share in it becomes the owner. The burden of paying the debt falls on the new owner now. But it is still complicated as the business may be dying as well.

4. Partnership limited company

When one partner of the company dies, the business doesn’t cease to exist. The rest of the partners may continue the business, or they may decide to sell it. In both cases, they are responsible for paying you the pending amount.

As we can see from this every business has different laws when it comes to collection. So, make sure you hire a debt collection agency as they know the laws and can handle this better.