How to Repay Family Debt

If you borrowed money from mom before she died, you still need to pay it back.

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Dear Alpha Consumer,

To make a long story short, I borrowed $30,000 from my mom. I signed a legal agreement to pay the money back to her. I built a house leveraging the money and now have good renters in it. My mom died. We each received about $20,000 from her estate. That leaves $10,000, or $2,000 each, that I owe to my five siblings. (I did not sign any separate agreement with them.) One sister in particular could use some money. But I cannot afford to pay them. What should I do?

You should probably figure out a way to pay them back, even if it means setting up a payment plan to chip away at the debt over time.

Putting aside future awkward moments around the Thanksgiving table for the moment, you are most likely legally required to pay your siblings back from the money you borrowed from your mother. Your siblings, as your mother's heirs, could pursue the money in court through an executor of your mother's estate, according to Bill Wilson, a partner with Wilson & Wilson Law Offices, which specializes in estate planning and elder law in La Grange, Ill. Legally, debts are still owed to a person's estate after death.

There is one possible catch, however. Most written statements, like the one you signed with your mother, have a 10-year statute of limitations, Wilson says. If the agreement has expired, you may be off the hook.

If the statement is still valid and your siblings do take legal action, then expect the case to take around a year to work its way through the local court system. Often, Wilson says, both parties end up settling out of court. But don't start looking for a lawyer yet; your siblings may decide it's not worth the hassle—or the lost love—to sue. "If [there are] not a lot of assets to begin with, it's silly to waste them on trying to get [someone] to pay," Wilson says. If you lack the money to pay them, they may also decide not to pursue the debt; but it sounds as if you are making at least some money through renting the house.

From an ethical perspective, the answer is more clear cut. "It's very interesting that there's a feeling amongst some people that somehow death wipes out debts. Clearly, that's not the case," says Kirk Hanson, ethics professor and executive director of the Markkula Center for Applied Ethics at Santa Clara University.

Hanson most often sees the issue crop up with deceased doctors' surviving spouses. They may have trouble collecting money for services rendered after the doctor has passed away. "Any standard of fairness would say that if you got the value [of the services or borrowed money], you should pay it back," Hanson says.

He suggests a metaphor to clear up the confusion: If your mother lent you a diamond ring to wear to a party, and she happened to die that night, that wouldn't mean that you got to keep the ring.

Whatever you do, know that there's a lot at stake. Says Wilson: "These are the things that break up families.... Sometimes people don't talk to each other for the rest of their lives."