When it comes to debts after the debtor's death, legal heirs have many questions about how to pay them. Although some people do not know it, it must be said that they do not cease to exist after death. However, the way they are handled varies from case to case. Therefore, check out in this article more details on how the payment of the debts of the deceased by the heirs works.
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Understand how payment of debts of deceased relatives works
To better understand how the issue of payment of debts by heirs after the death of a family member works, it is first necessary to clarify that, when a person dies, an inventory must be opened, which is in charge of gathering all their belongings and distributing them to the heirs.
We can divide equity into two categories: “positive” assets (money, real estate, cars, companies, etc.) and “negative” assets (outstanding debts, investments and financing). As a result, paying off a debt in this way is likely to result in three different situations.
How does debt payment work?
The first scenario occurs when the value of assets left behind exceeds the value of debt. In this scenario, the total amount of the debt will be paid off and the remaining assets will be divided among all heirs.
When the opposite occurs, that is, when the debt exceeds the positive equity, it will be necessary to use the total value of the assets to reduce the debt to the lowest possible value. In that case, there will still be a portion to pay, however, the heirs will not be required to pay. The remainder is likely to be held by creditors.
Finally, under unusual circumstances, the value of the goods may equal the amount owed. If logic is used in this case, the debt must be paid off and no assets will be divided among the heirs. Therefore, it is important to first know the debt situation to know which of the cases mentioned above the situation fits.
