If someone owes a massive amount of money and then dies, do the banks just forget about it or do they try to coerce the living relatives of that person into paying the dead person's debt? And if banks do coerce the living relatives into paying the dead person's debt? How can they do that? I thought people are only responsible for their debt and not responsible for the debt of every person in their family...

It depends on the law of the country, but you usually if you accept the legacy you take also the debts.

To coerce, usually they simply arrive in your home and start selling the not yours anymore stuff.

As far as I remember in Germany you have two options. Either you say "ok I want to get the inheritance" or you can decline the inheritance. If you accept it you have to pay the debts but get the things the dead person left. So most people check the financial status of the dead person before accepting/declining it. And if they decline it, it happens that they just sneak into the apartment of the dead relative to sneak out some mementos before everything will be gone ;-)

it also depends on the type of dept. For example credit-card depts are always (? correct me if I am wrong ?) personal and can not be inherited, even if the credit-card issuer try to make you so. A loan is different, and it depends a lot on local legislation and the type of loan.

They arrive at your house and steal your stuff if you are related to some asshat in your family who borrowed a shit load of money and died? Germany is a very advanced country so I'm not surprised the way they handle it is sensible. They give people a choice and that is sensible. But how do they handle this problem in the USA?

Some banks require someone's backing (such as the parents) to give a loan (such as a mortage). It can sometimes be really difficult to get a loan without the backing of somebody else who promises to pay the bank back if you end up unable to do so.

I know in the USA, a loan has to be signed by two people but what happens if both those people die?

In the UK if someone dies with debts they are paid from their estate if possible. If there is not enough to pay the debts then they are written off (ignored) and cannot be reclaimed from anyone else (unless the debts were in joint names originally, in which case they can and will pursue the other party; not sure if the same is true of a guarantor, I'd have to look it up).

That being said it doesn't always stop companies from trying to recover debts from partners or family members, but it is illegal (here) to do so.

Unfortunately... I'm not sure whether the same will be true in the USA. If this is something that has happened or is likely to happen I would seek advice if possible. I don't know if you have free advice organisations over there (like the Citizens Advice Bureau here), but if you do I would go and find out what the situation is asap.

No idea, much less about the USA. But my guess would be you're not responsible as long as you didn't sign anything covering for that person.

Edit: I should clarify, the reason behind my guess is that they wouldn't ask anybody to sign a paper to cover for you, if they could make them cover for you anyway without it.

I think in most countries the debts are paid from the estate first before the inheritors can get their paws on the loot.

In the United States, everything I have read on the subject says that debt from a deceased person is only legally tied to their estate. It does not transfer to next of kin, and only in some states can it potentially transfer to a spouse. If you accept the deceased's estate as inheritance, then you may end up being liable for any debts -- so you should thoroughly investigate the deceased's financial records to make sure you are not accepting any debts unwittingly. There may also be a few 'gotcha' cases involving joint bank / credit card accounts, but in basic principle debt does not transfer.

However, debt collectors can be an incredibly unscrupulous bunch who will often do whatever it takes to try to coerce surviving relatives to pay for their deceased relative's debts, even though they are not legally obligated to do so. Debt collectors will say almost anything and use almost any tactic, sometimes even illegal ones, to try to make relatives give in due to fear, guilt, ignorance, or some other emotion. They often prey on the vulnerabilities of those who have recently lost someone close and use it to their advantage.

If this is a serious concern of yours you should contact a trustworthy lawyer that specializes in family law, inheritance law, or bankruptcy law. Ask your friends or other relatives for referral. In most cases, just getting a basic consultation or basic information over the phone is free. The internet is nice for grousing some basics, but you need to contact a real, licensed expert to get sound information and accurate advice.

You do? I have my second mortgage ongoing at the moment, and I never had (nor wanted) someone else to back them up, just like I would not back someone else's loan (well, maybe my own children, but definitely not friends etc.).

It was merely about the bank believing that I am able to pay back the mortgage, or a pledge in case the shit hits the fan. For instance, for my current housing loan, the bank is using my earlier apartment (which I've rented out) as a "deposit", plus my new apartment. So I guess in the worst case, they would keep (and sell) both apartments, in case I couldn't pay back my loan. In reality though, depending how much loan was left, I would sell one of the apartments, and pay back rest of the loan with that. Well, unless the housing market suddenly collapsed and they lost their value.

monkeydelarge - is there a situation that has you asking about this? If it's a difficulty you're facing then my advice is to make an appointment with a family attorney from your state to walk you through this stuff. Really helped us out as we were trying to muddle our way through it.

No, you don't need two people to sign for a loan. Some banks might tell you that you're not going to get a particular loan without a co-signer, but it's not an across-the-board requirement. Comes up often when someone has poor credit.

Just went through this recently, after Dad died last April, He lived stupidly and died in debt. I can only speak specifically for Wisconsin since laws can vary by state, but I'm guessing they're pretty close wherever you go. This is how it went for us:

If there is an estate the state gets first crack at it, for things like back taxes or social programs. Then assets are disbursed per the instructions in the will. After that, with whatever is left-over as unspecified assets (say, $10k sitting in an account but the will doesn't say what to do with it), the executor picks and chooses who gets what. In our case, some dumbass bank loaned him too much money for a shitty truck that he didn't need and paid much higher than it was worth, so I had no sympathy for them and I decided they would get zilch if there was anything left over. They had a judgment against him and I felt a perverse pleasure when I told them that he passed and that there was nothing in the estate for them to collect. Shitty of me, but that's how it felt at the time because I was pissed that they looked at his SS income, looked at the loan amount, and some dipshit decided, "Yeah, this loan should work."

The non-spouse heirs should not face any obligation EXCEPT for funeral / burial costs. Because, technically, this happens AFTER he died so he didn't actually accrue that debt. This can come out of the estate, after the government takes its cut.

In "Community Property" states, like here in WI, the spouse automatically gets everything unless there is a will / beneficiary statements that direct otherwise. Without a will, the spouse gets all of the assets and assumes all of the liabilities, whether or not said spouse signed for those liabilities. This may be how it works in most states.

Now, from my understanding, assets disbursed from a will take precedence over debt. I asked a few times and got the same answer, so I hope I'm getting this correct. They explained that if he had anything worth any money (nothing, really) and it was disbursed via a will, then that asset can not be touched by creditors. Sounds odd, since you could borrow $100k, assign that $100k in the will, and simply welch on that debt. Something seems off about this - in that I likely misunderstood it - but that's how I interpreted it each time I asked.

As to coercion, so long as you do the probate properly then I don't think there's much the creditors can do. Legally do, that is - there is all sorts of shit they can TRY to do. We were told probate is the key, and even for his next-to-nothing estate that was easier said than done. If you don't handle the probate correctly, then I suspect that the creditors might be able to come after the executor for the debt.

IANAL! And your state will have different rules.

Ok, thanks for the clarification. It sounded a bit odd to be true.

Well, since you can't take either your money or your debts with you to afterlife, maybe that is not so stupid after all. :)

In most cases in the US when a person dies their estate goes through probate court to decide how it's divided up. The court acts as an arbitrator to settle any disputes between people laying claim to the estate. The person's will, family members, and the executor of the will (if one is assigned) tend to have the most say, but creditors can also come forward at this time to try to claim part of the estate to settle any outstanding debts. Whether they actually get anything depends on the local laws and how the court chooses to rule.

Things can get a little more complicated if the estate was put into a living trust before the person dies (this gives the executor of the trust much more power, and pretty much cuts out the probate court), although I'm not sure exactly how debt is handled in that kind of situation.

Also, there can be differences in how securitized vs unsecuritized debt is handled. With securitized debt (such as a mortgage or car loan) the debt may remain attached to the property (and thus transfer to whoever claims that property), while unsecuritized debt (e.g. credit cards) don't have any mechanism by which to transfer. Again, though, local laws determine most of the specifics here.

Finally, as the.kuribo mentioned, debt collectors may not always care about what the law says, they just want their money. If this becomes an issue and you're in the US then you'll want to familiarize yourself with the Fair Debt Collection Practices Act, which governs what debt collectors may and may not do. If you specifically call out a debt collector for violation of the FDCP then they'll usually back off pretty quick, as they can face rather hefty penalties for violating it.