What Happens to Your Debts After Death
Of the many downsides to death that you could name, you might think the upside is that you no longer have to worry about the huge pile of debt you’ve accumulated over the course of your life – an average of nearly $ 62,000, according to Credit’s report for 2017 year. .com – from astronomical medical bills to home mortgages you can’t afford to tens of thousands of dollars in student loan debt.
Finally, you think on your deathbed, I am free from the shackles of the $ 10,000 credit card debt I owe for the purchase of meaningless possessions that have not helped fill the void inside me.
Unfortunately for your relatives, this is a little more difficult.
When you die, all of your assets – cash, real estate, bank accounts, etc. – make up your property. The value of your estate is determined by a court of law known as a will. Before you hand over money (or anything else) to your heirs, your debts will be paid off. The contractor will take care of all this and (hopefully) pay off your debts with your property. If your estate doesn’t have enough to satisfy creditors, your family members may be in for a nasty surprise.
Mortgages and car loans
Someone else will be responsible for your mortgage if it is inherited or if he or she is a joint homeowner. Otherwise, the contractor will pay off the debt. Since mortgages are secured debt, lenders receive the first money from your assets to repay their loan. Likewise, if you have a home equity loan, the lender may require a prepayment from the person who inherits the home.
This is true even if people still live in the house after you die. If you have debt, they will either have to take on the mortgage or sell the house in order to repay the debt to the creditors.
It’s the same with a car. If the property cannot cover the cost of the debt and you have a co-signer, they are responsible for the remainder of the loan. If they do not return the money, the car can be returned back.
Credit card debt and medical bills
The credit card debt is unsecured, which means that if the estate runs out of funds after the mortgage and car loans, lenders have nothing to sell to get their money back. However, if you have a co-account owner, they’re hooked (authorized users don’t, but they won’t want to keep using the card).
If the estate has no money left after mortgages and car loans, credit card companies may be out of luck, unless you live in a public domain that includes: Arizona, California, Idaho, Louisiana, Nevada, New Mexico. Texas. , Washington and Wisconsin. In this case, your spouse is on the hook for all debts incurred during the marriage (they are not responsible for any previous debts).
It’s the same with medical bills. If you have money in your property, creditors can make a claim. Otherwise, debt can die with you, unless you live in a state with public property.
Student loans
Federal student loans are paid out or forgiven when you die , and federal PLUS loans are paid out when a student or parent dies. If you have money on your estate, it will go towards paying off your private student loan. If there is no money left, student loans are unsecured and therefore will not be returned (Sally Mae and Wells Fargo reportedly offer forgiveness in the event of death or disability, but this is not the norm).
The exception is when you have a joint signature. They will be liable for the remaining debt, just like the publicly owned spouses if the loans were taken during the marriage. (Some states have exceptions for student loan debt, so you’ll want to check.)
So what is safe from creditors? Usually retirement accounts and life insurance (unless the beneficiary and the deceased share debt). Everything else is pretty much fair game. Since everyone is dying, it’s a good idea to talk to a lawyer and clean up your estate so that your family doesn’t have to deal with it.