Most Americans hold some sort of debt at any given time, but what happens to that debt after you die? As much as we would like to think our debt dies with us, that is not always necessarily true. Your estate, which is the assets and money you leave behind after you die is still responsible for the debt, and sometimes even your surviving family members may be on the hook for your debt. Having a plan in place is essential for protecting your loved ones from your debt.
Your Estate Is Responsible For Your Debts
After you die, everything you owned goes into your estate to be distributed first to your debtors, then to your heirs. This process is called probate. The executor of your estate is responsible for handling these details. When you write your will you should designate an executor that you trust.
Your Loved Ones May Be Responsible For Some Debts
Anyone who has co-signed on a loan for you may still be on the hook for the debt after you die. If you planned on leaving an inheritance to your loved ones your debt might eat into what they end up with.
Beneficiaries Can Still On The Hook For Mortgage Payments
However if there is a co-owner or someone inherits the house they can just continue making the regular mortgage payments if there isn’t enough money in the estate. It is illegal for a lender to force a co-owner to pay the mortgage in full after the other owner passes away, except if there is a home equity loan taken out on the house. A lender can demand immediate repayment, however most lenders will work with surviving family and allow them to continue making payments over time.
Your Spouse May Be Responsible For Your Credit Card Debt
In some states your surviving spouse may be responsible for your credit card debt even if they are not on the account. Usually the estate is responsible for paying off all credit card debt, however, if there isn’t enough money or co-signers, the credit card companies are out of luck.
Your Car Can Be Repossessed
If you have a car loan it is usually paid out of the estate. If the estate can’t cover it, generally whoever inherits the car continues making payments or the lender repossess the car if the payments stop.
Generally for most student loans the debt is forgiven after you die. However if they were private loans, the cosigner or the estate can be liable for the debt. If there is no money in the estate the lenders are out of luck.
Creditors May Call Your Loved Ones
It is legal for creditors to call certain family or the executors of the deceased to discuss the debt, however they are not allowed to mislead them into thinking they are responsible for paying any of it back.
- What Creditors Can’t Touch
Life insurance and retirement accounts can’t be touched by creditors. Life Insurance is good to have not only for this reason, but can help family who will need help covering bills like the mortgage or car payments.
Nobody likes to think of dying, however since it is inevitable that you should have a plan in place. A will makes things easier for those who you leave behind and life insurance protects them financially.