Advanced Cancer: What Happens to My Medical Debt After I Die?
by Vivienne Duncan, Director December 18, 2018
Advanced cancer and medical debt
A majority of New Yorkers will leave behind some amount of debt when they pass on. For those diagnosed with cancer, and especially those with advanced cancer, this may be of particular concern as they embark on medical treatment that could significantly impact their own, and their family’s, financial stability. Cancer treatment is costly – and some options cost thousands of dollars per session. Even with insurance coverage, the out-of-pocket costs can quickly accumulate, making it difficult to keep up. As a result, cancer patients are often concerned about what the consequences would be if they are unable to pay off the debts during their lifetime and whether responsibility for the outstanding amount would shift to their family. Their concern is well-founded as most debts do not automatically end with death; therefore, it is crucial for family members to understand their rights and to seek advice from an attorney in these situations.
How are debts generally handled after someone dies?
When someone passes away they may leave behind bank accounts, real estate, cars and other possessions which are collectively called an “estate”. That estate will go through a court process known as probate, where the court ensures that outstanding debts are paid and property is distributed to the legal heirs. Any outstanding debts must be paid out of the deceased’s estate. If there are sufficient assets in the estate to pay all the debts, the estate is ‘solvent’ and any remaining property can be distributed to the heirs as designated by the Will (or by New York’s “intestacy” laws if there is no Will). If there is not enough cash in the estate to cover the outstanding bills, the executor, (the person tasked with settling the deceased’s estate), can apply to the court for permission to sell assets to raise more money. If the amount of debt exceeds the value of all the assets, the estate is ‘insolvent’ and some creditors may not get paid; i.e., taxes and funeral expenses are paid before credit card debt.
Not all property will become part of an estate. Some jointly-held property, including most homes owned by married couples, joint bank accounts, as well as some financial accounts that name a ‘beneficiary’ who will receive the proceeds (i.e. a pension or life insurance policy) will automatically pass to the surviving owner or the named beneficiary, without the need of a Will. Certain types of property will not be accessible to creditors.
Is my spouse required to pay my medical debts?
In New York, if only your name is linked to a property (i.e., bank account, house deed, etc.) or service, any debt related to it is generally yours alone and most creditors can only seek payment from your estate. However, in certain circumstances it is possible for some creditors to try to recover the balance from your spouse:
(a) Your spouse has signed or co-signed an agreement accepting joint responsibility for paying the debt. Most people are aware of the importance of carefully reading any documents before signing, including those presented at the time their spouse is admitted to the hospital; it may contain a ‘guarantee of payment’ making the signer personally liable if the patient’s own funds are insufficient to cover the medical bills.
(b) Less well-known is a legal obligation based on the ‘Doctrine of Necessaries’ (or Necessities), which deems that married couples have a ‘mutual obligation of support’. This makes them equally responsible for providing certain necessities (i.e. food, clothing, shelter, child care and medical care) for each other and their minor children. On that basis, if a creditor has been unable to obtain payment from you for medical services provided during your lifetime, he or she may seek to recover the balance from your spouse. However, in order to do so, the creditor must first prove to the court that they tried to collect the money from you or your estate but the funds were insufficient – and also that your spouse has the resources to pay the debt. This could require your spouse to use savings or sell property to comply.
A spouse is not personally liable for debt acquired for non-‘necessaries’; in that case, creditors must submit a claim to the executor of your estate.
Can creditors force my children to pay my debts?
Under New York law, adult children are not personally liable to pay their parents’ outstanding debts, including medical bills, unless they have signed a document accepting responsibility for doing so. All documents should be carefully read before signing, especially those presented when a parent is being admitted to the hospital as it could include a guarantee of payment, making them jointly responsible for your bills. Without such an agreement, your children are not required to pay your debts out of their own pockets; instead, creditors must submit a claim to the executor of your estate. The result may be that your heirs will inherit less than you had anticipated as only after your debts have been paid out of your estate will they receive the remaining property.
What about my jointly-owned property?
A creditor may try to access your share of the jointly-owned property to pay the outstanding debt. For example, if you and your spouse (or child) share a joint bank account (as joint owners), a creditor may try to claim fifty percent of the contents.
Married couples generally co-own their home as ‘joint tenants by the entirety’, meaning each owns one-hundred percent of the property, rather than each owning a fifty percent ‘share’. When one spouse dies, the survivor automatically becomes the sole owner. This form of ownership would usually protect the house from claims by creditors seeking to recover money from any property in which the deceased debtor may own a share. However, if your spouse has signed as guarantor for your debts or they are categorized as a debt for ‘necessaries’ by the court, the creditor may succeed in placing a lien on the property to recover the debt. The same does not apply to regular (non-‘necessaries’) debt. Those creditors can only recover money from your estate, which would not include a house held as joint tenants by the entirety.
Children may co-own property with their parents as ‘joint tenants with rights of survivorship’ (as with a joint tenancy by the entirety, the survivor automatically becomes the sole owner of the property) or as ‘tenants in common’ where each person owns a share of the property which they can dispose of as they choose – usually in their Will. However, unlike married couples, both of these types of joint ownership can be divided for debt purposes and creditors can apply to the court to put a ‘lien’ on the house. This would give them a claim on your share of the property until the debt is paid, either from your estate or when the house is sold. Creditors may try to use the lien to force a sale of the property to access your share of the sale proceeds.
Executors often encounter other types of debt that must be addressed, including credit card (in sole or joint names), mortgage, student loans or Medicaid. For a more in-depth explanation of how certain debts work after death and how it may impact you and your loved ones, consult with an attorney.
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