Thinking about death and what will happen to your loved ones after you are gone can be an uncomfortable endeavor, but proactive thinking is necessary to protecting your family from unintended consequences. You owe your family a plan when considering what will become of not only your property but also your debt.
As Americans continue to work well into their twilight years, many are still paying off mortgages or vehicle loans. Other individuals of advanced age may require costly, full-time medical care, including in nursing homes or to treat worsening health conditions. These factors can contribute to an elderly individual accumulating a large amount of debt, especially in their old age.
You may be wondering if children will inherit the fiduciary obligations of their parents. The short answer is: It depends. Below, we cover when children may be expected to pay off parents’ debts and when they have no responsibility for doing so. We also discuss how bankruptcy can be a powerful tool to help families placed in this difficult scenario.
The Basics of Pennsylvania’s Filial Responsibility Law
The state of Pennsylvania has what is called a “filial responsibility law,” one that requires adult children to take responsibility for some types of debt of their parent should they become “indigent.” In other words, if your parent becomes unable to communicate or handle their financial affairs, you can be expected to step in and manage paying their debts on their behalf. In fact, you can be held financially responsible for their debts.
The filial responsibility law does not exclusively apply to adult children. It can also apply to spouses and parents of the indigent in question. This is an important distinction, as you will not necessarily be on the hook in all types of family situations. For example, if your father has become incapacitated but your mother is still alive and cogent, she will likely take the reigns of his financial affairs, not you.
Where you will want to be prepared to step in is situations where your parent is no longer married (or has no living spouse) and has no surviving parent themselves.In these scenarios, you (and/or your siblings) could be held financially responsible for some types of debt, even before your parent passes away.
Exceptions to the Pennsylvania Filial Responsibility Law
If you think the filial responsibility law might apply to you but you are worried you will be unable to pay your parents’ debt, do not panic. There are two key exceptions to Pennsylvania’s filial responsibility law.
You will not be subject to the filial responsibility law if:
- The parent abandoned you for 10 continuous years or more while you were a minor
- You do not have the financial means to pay the parent’s outstanding debts
As you might expect, the latter point is important. If you get hit with debts you cannot reasonably hope to repay on your current income, a court will likely release you from the financial obligation. However, creditors may be aggressive in pursuing payment and could even file a lawsuit claiming you are in fact able to pay the debt, especially if it is through some sort of payment plan.
Types of Debt Children Can Inherit from Parents
If you are the child of a parent with a great deal of debt, you might be worried that you could become obligated to pay off everything. The good news is, even under Pennsylvania’s filial responsibility laws, you will not be expected to inherit all types of your parents’ debt. Any unpaid debt will carry some consequences, but many will likely not apply directly to you and should not affect your credit scores.
The biggest type of debt you can expect to inherit from parents in Pennsylvania is medical debt. The state’s filial responsibility law specifically designates medical bills as something that can pass to the person or persons taking responsible for the indigent, including adult children.
This can quickly become problematic if your parent requires extensive, long-term, or permanent elderly care. Nursing homes can be exorbitantly expensive, as can recurring hospital stays to treat chronic conditions. Mounting medical debt can quickly become insurmountable.
Hopefully, your parent will have financial resources to help manage these costs. If not, they might consider applying for Medicaid to avoid passing the bills on to you. The filial responsibility still law might trigger if Medicaid benefits are denied or are still insufficient in covering healthcare costs. Again, this means the debt might start impacting you before your parent even passes away. Once they are gone, you will likely be expected to pay the outstanding debt in full.
Additionally, you can become liable for any debts in which you are a co-signer, like a mortgage or vehicle loan. If you co-signed the mortgage on a house with your parent, for example, you will still be on the hook for making those payments when they pass away.
Types of Debt Children Are Not Responsible for Paying
Children are generally only financially responsible for debts in which they are a cosigner and unpaid medical bills. Every other type of debt – credit card bills, utility payments, mortgages, other types of loans – is not their responsibility if they are not otherwise formally tied to it.
Understanding this is essential, as some creditors will often resort to unscrupulous tactics to convince grieving children that they are obligated to pay their parents’ outstanding debts. If you are not a co-signer on a legal agreement tied to the debt or a piece of a joint account, you are not required to pay, unless it is a medical debt covered by the filial responsibility law.
Do not listen to creditors attempting to convince you to pay up for debts that are not yours! While there can be consequences for unpaid debts, they will not affect your credit score. Probate court exists in part to settle outstanding debts.
What Happens to Debt Once a Parent Passes Away
If you become obligated to a parent’s debts under Pennsylvania’s filial responsibility law, you may already have been expected to make payments on their medical bills or co-signed loans. Once a parent passes away, their estate will go through Pennsylvania’s probate court system. Among other things, this involves a tabulating of all remaining debts and an inventorying of the estate’s assets.
Part of the probate process involves the estate’s executor assessing remaining debt and liquidating assets, if necessary, to repay creditors. This is where things can get tricky. If the parent has secured debt – loans with some form of collateral, like a house or car – default is likely if there are insufficient assets to settle the associated debt. A house or a car will likely
Some other forms of unsecured debt, like credit card bills, might leave creditors out of luck. If there are no co-signers on an account and no available assets to compensate them, they may simply have to accept a loss. As we mentioned above, some creditors may attempt to persuade you to pay the debts on their behalf, but you are in no way obligated to do so.
If you are a parent, you likely have some sort of inheritance plan in mind for your children, one hopefully laid out in a will or other estate planning document. Keep in mind that if you have a large amount of debt, any items that enter probate have the risk of being sold to settle outstanding obligations. Put simply, debt can jeopardize final wishes involving an inheritance.
There are multiple ways to potentially avoid this. Some will use certain types of estate planning, like a living trust, to shield their assets from probate. Property placed in a trust typically cannot be liquidated to repay creditors and will be passed on under the conditions you lay out.
Another option is to get on top of your debts while you are still alive. Medical debt will persist no matter what you do with estate planning, and it is possible it will get passed on to your children through the filial responsibility law.
How Bankruptcy Can Help Solve the Debt Inheritance Problem
Chapter 7 bankruptcy and Chapter 13 bankruptcy can both enable you to discharge unsecured debts. This encapsulates any type of debt without collateral, including credit card debt, unpaid utility bills, personal loans, and, most relevant to this discussion, medical debt.
By successfully completing a bankruptcy filing, you will likely be authorized to discharge any outstanding medical debts. You will avoid passing on a significant financial burden to your children, and you will likely also indirectly protect any inheritance plans you may have contemplated.
Keep in mind this option can only be explored if you, as the parent, are still of sound mind. If a parent has already become indigent, requiring a child to take on their financial responsibilities before their passing, they will most likely not be able to file for bankruptcy.
If you are a child who finds themselves on the hook for an insurmountable level of parental medical debt, you should also consider bankruptcy. You will most likely be able to free yourself of your parents’ medical debt as well as any other dischargeable debts you may have.
We Can Help You Explore Bankruptcy as a Means of Managing Inherited Debt
At Dethlefs Pykosh & Murphy, we understand the hardship the loss of a parent can bring. The last thing you want to deal with during the mourning process is an enormous medical bill. If you do find yourself responsibility for your parents’ overwhelming debt, our bankruptcy attorneys can help you explore your legal options. If you are a parent anticipating the possibility of debt passing on to your children, we can assess if proactive bankruptcy might make sense for your situation.
Our lawyers will work with you directly to solve your financial problems as expediently and painlessly as possible. Our firm has helped Pennsylvania clients find financial relief for over a decade, and we are prepared to help give you the tools to overcome your debts.
Schedule a free initial consultation by calling (717) 559-0271 or contacting us online.