Where Does Debt Go After Death?
Unfortunately, your debt can stay alive and well even after you leave. While this does not necessarily mean that your children or your spouse will inherit the financial mess, in some cases they may be responsible for some of the debt you left behind.
When you die, you usually leave your possessions (everything you own, including investments) to someone you trust, such as your spouse or your children. This person is called the performer on the estate, and the performer is responsible for using your assets to pay off bills and debts. For example, if you have $ 100,000 in savings and you owe $ 5,000 on bills and credit cards, that $ 100,000 will be used to pay both.
But let’s say you have nothing but bills and debts.
The good news is that the performer, your spouse, or your kids are not automatically hooked on your debt. However, they may be liable in some circumstances, for example if they co-signed your loan or are a joint holder of an account or debt that you owe. For example, if you owe thousands on a mortgage and pass away, if your husband’s name is also listed on that mortgage, he will indeed be responsible for the remainder of the balance.
While your spouse may not be responsible for the debts you accumulated before marriage, depending on where you live, spouses may also be responsible for paying off other debts of the deceased partner, even if they did not sign them up jointly. and even if they are not the owner of a joint account. If you live in a public domain (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), your spouse may be hooked upon your death, provided that you marriage time. … “Half of any public property from marriage can be used to pay off debt obligations,” explains NerdWallet .
Apart from these general rules, it can be tricky because there are certain rules that differ depending on the debt. NerdWallet parses the rules for specific types of debt:
Mortgages : If there is a joint homeowner or someone inherits the home, they may be liable for the debt. Federal law prohibits lenders from forcing a co-owner to pay off a mortgage immediately after the death of the other co-owner. inheritance money to pay off; or apply for a new home loan to retain ownership of the home. If they decide to sell the house and sell it for more than a mortgage, they can pocket the difference. If they sell for less, they’re not on the hook, Bankrate says.
Credit Cards: If your estate is running low on assets to pay off balances, credit card companies are out of luck, reports NerdWallet. “Any joint account holder will be held liable for unpaid bills. People who are just authorized credit card users are not responsible for paying the balance. ” Again, in communal states, spouses are responsible for debt incurred during the marriage, including credit card debt.
Student Loans: Federal student loans are repayable on death, and some private lenders (such as Sally Mae and Wells Fargo) will forgive you after your death. It is also difficult. In general, the estate can be used to pay off private student loans, but if there is not enough money, lenders cannot do anything like a credit card debt. However, there are some exceptions:
- If someone signed up for a private student loan, they are responsible for the remaining debt.
- If the student has taken on a debt during marriage and lives in public property, the spouse may be responsible for the remaining debt on the private student loan. Most public real estate states will make an exemption for education-related debt, according to Student Loan Hero , a bankruptcy attorney . Here you can find specific rules depending on your state.
In short, you can transfer your debt to your spouse when you die, but in general you are not going to automatically transfer it to your children, beneficiaries, or the person managing your assets. However, debt collectors have a particularly nasty right to call your family members to inquire about debt. The good news is that we have the right to ask them to stop calling the FTC, and they give detailed instructions on how to do this here .