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Debt After Death: What Happens?

Many people wonder what happens to their or their loved ones’ debt after they pass away and worry that those left behind will be stuck paying for their debt. Close relatives to the family member that died are generally not liable for most debt. Each state has its own laws regarding debt after death, so if you have specific questions, it is best to speak with an estate lawyer.

After you die, your estate can be used to pay off your debt. If you do not have an executor, your state may appoint one for you. They will determine what needs to be paid and how it is paid. Secured debts are paid first, followed by unsecured debts such as credit cards. If there are not enough assets to cover your debts- your loved ones may start to get calls from creditors looking for payments. It is essential that you and your loved ones know your state’s specific guidelines in order to prevent them from repaying debts they do not have to pay.

For credit card debt, the responsibility to repay will depend on if there is a co-signer on the card. If your spouse co-signed for your credit card, they can be held responsible for your debt even if they never used the card. However, if they are simply an authorized user, they are not liable to repay the debt. There may be exceptions to this in community property states.

Lenders often sell their outstanding and unpaid debts to third party collection agencies. Every time the debt is sold, the survivors may begin to receive calls looking for payment. Keep all financial information organized and accessible, so your spouse or family member is not coerced or guilt tripped into paying a debt where they have no responsibility to repay.

Many individuals assume that debt after death is written off or forgiven, but that is not always the case. Unfortunately, that is not how the law works in most states with the exception of federal student loans. However, that does not mean your spouse or close family member is automatically held liable for your debt after your passing either. Many times lenders and creditors will count on the family not knowing the laws and will take advantage of their ignorance to make it sound like they are responsible, even when they are not.

If you are concerned about leaving a large amount of debt behind for your family or losing the value of your estate to debt, there are many ways to reduce or eliminate your debt. Talk to a debt counselor who can help you learn how to fix credit problems, good money management skills and living within your means. Many times credit cards and other types of debts will have available protection plans you can add for an additional monthly fee. If you sign up for a protection plan-your debt would be forgiven upon your death. Know your state’s laws and speak to a professional to leave your family financially secure after you die.

This reminder was brought to you by Secure Loan Consolidation.

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11 thoughts on “Debt After Death: What Happens?

  • If this doesn’t motivate you to get out of debt, I dont know what will.

    You can’t leave a pile of crap and harassing phone calls behind for your family to deal with.

  • Oh,that would drive me bananas if I had collection agencies calling me for a relatives debt.
    Good information to look into if you have debt. I’m not sure how it works in Canada but I’m definitely going to look into it.

  • I would be furious if I had to clean up the debt of a loved one. (Hmmm…I better start harassing my parents to clean up their act!) I need to check the state laws and make sure I wouldn’t be liable. I’m guessing their “estate” or properties would have to take care of whatever they owe at the time of their death.

    • Just remember, Little, if you will inherit from your folks, you will have to liquidate the property of their estate to pay their debts. Then you will get what is left, if anything. Even though you are not reaching into your pocket to pay their debts, you can lose money you would have inherited.

      That talk with your parents may not be a bad idea.

  • The flip side, make sure your beneficiaries know of any debts you have. A friend of the family inherited a house from her parents, but didn’t know they were still paying a mortgage on it. She COULD have afforded the mortgage payments if she had known about them. Instead, the bank foreclosed on the house a few months in.

  • It’s amazing how intense debt collectors can get after death. When my stepdad passed, his credit card companies started to call my mom constantly and pressure her to pay off his debt. She knew her rights and told them that she was not a signer on any of his debts and was not liable. Eventually, they went away, but it was a painful reminder to my mom about her husband’s death every time a creditor called.

  • I’ve thought about this many times and have wondered if children are liable for the debts of the parents upon death. I can see spouses being liable, but what about children? Even if collection agencies do call the children for money, are they legally obligated to pay those debts?

  • Hello, I am Cat. I am a student from Singapore and am currently in rolled in a personal finance class. I found this article really interesting because this topic came up in class once. My classmates and I were curious to know what stops someone from just accumulating millions of dollars in debts if it all just dissolves after they die. If they didn’t have any close family to leave troubles to, what stops them? I understand how the house could at least make a dent in the debts but, wouldn’t there still be a lot left over if this the person was really in a lot of debt? I feel like if the debts were on credit cards, the credit card companies would not just forget about it. So, who takes over the debt if the deceased person has no other assets to pay it off with?

    • That’s a great question!

      Honestly, there is nothing to stop someone from running up massive amounts of debt before they die, especially if they have no relatives who would be responsible for the debt upon their death. Many people used to do this before filing for bankruptcy. They would purposely purchase things and increase their debt load before filing bankruptcy, then have the debt dissolved after bankruptcy. The credit industry lobbied the Federal government to change the laws, and no it is not so easy to do. You can now find yourself personally liable for fraud or you will be put on a repayment plan to repay your creditors.

      Back to death. What keeps many people from doing this? Usually they don’t want to leave their families with this burden or they are just honest people with integrity who accept their responsibilities. Most people have morals or a religious belief that doesn’t allow them to act as criminals.

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