As the old saying goes, you can’t take it with you. This is not necessarily a bad thing. If there is…
As the old saying goes, you can’t take it with you. This is not necessarily a bad thing. If there’s a good place out there out there, who would want to take credit card debt and medical bills with them?
Yet the question of what happens to the debt when you die raises other questions: Who ends up with the bill? And what if no one can pay your debts?
It’s certainly not the most enjoyable subject, but we have answers to these and other questions.
[Read: What Happens if You Don’t Pay Your Debts?]
Who is responsible for your debt when you die?
As you can imagine, it’s complicated. “Usually, the deceased’s estate is responsible for their debts,” says David Clark, lawyer and partner at the Clark Law Office in Okemos, Michigan.
This means that your spouse, if their name is not on the debt, is technically clear. Your children too. But, of course, if your spouse or children inherit the assets of the estate and the estate has to pay off the debts first, the assets will be less.
Thus, your debts will not disappear instantly.
As to who is responsible for paying off those debts, Clark says, “Having a will allows an executor or appointed administrator to manage the finances of the estate. When a person dies intestate or without a will, the estate goes to probate and the court appoints an administrator who will distribute the assets of the estate in accordance with state laws.
Will creditors go after my family if I am in debt?
They shouldn’t, but they can have uncomfortable conversations, and legally they can.
“The children are not responsible for the personal debts of the deceased,” says Clark. “However, the Fair Debt Collection Practices Act allows collectors to discuss these debts with the family of the deceased.”
Additionally, some debt collectors can test the limits of what is ethical and what is not.
Natalia Lucci, director of marketing in Fort Lauderdale, Florida, said creditors have been harassing her and her husband since her 74-year-old father died of COVID-19 in September 2020.
Like many Americans, Lucci’s father was overwhelmed. He died owing to $ 16,000, spread over four credit cards, and he had dental bill collectors after him for dental treatment he was unable to afford. He also had a car that was still in the process of being reimbursed.
“It was an easy fix,” says Lucci. “They have just taken the vehicle back.
Lucci says she finally managed to roll back a few companies after providing them with her death certificate. “But even then, some collectors didn’t give up. We even received threats of jail if we didn’t pay, ”says Lucci.
These threats were empty threats, as Lucci well knew, calling them “more annoying than anything else”.
Consumers can get some relief from off-limits debt collectors by reporting them to their state’s attorney general’s office or the Federal Trade Commission on FTC.gov or by calling 877-FTC-HELP.
[Read: How to Negotiate With Debt Collectors.]
Are there debts that are inherited and debts that are not?
In short, no debt can be inherited. But again, if your family inherits an estate, or part of it, the estate may have to pay what it owes before it can distribute funds to family members.
However, the estate may not have to pay everything. Here’s how things generally break down.
The bank will not be left high and dry. Either way, either the mortgage will be paid off or the property. “A mortgage is a secured loan, so if the estate does not make arrangements to sell or manage the debt, a creditor will foreclose on the property the same way they would if the debtor was still alive,” explains Jeremy Heck, a creditor relief attorney at Luftman, Heck & Associates, headquartered in Columbus, Ohio.
Auto loans are treated the same. “A creditor will almost certainly repossess the car if the debt is not dealt with through probate,” Heck said.
If you die leaving medical debts behind, your children usually won’t be at fault, but your spouse can, according to Heck. “This is possible thanks to a specific revised code that allows medical providers to hold them accountable,” he says.
Credit card debt
Late credit card payments are considered unsecured debt, Heck says. “A creditor can bring a credit card action against the estate, but these types of claims are rare,” he says. “What happens more frequently is that a creditor cancels this debt if it is not repaid by the administration of the estate.”
Generally, federal student loans will be canceled if a family member requests them and produces a death certificate. With private student loans, it depends on the policy, but the chances of them being released are good, unless a family member has co-signed the student loans.
What can we take away from the family to repay the debts?
Again, it is about the succession.
If you have a house, car, and credit card debt when you die and your family still lives in the house, obviously the monthly mortgage has to be paid somehow. If the mortgage payments do not continue, the house could be foreclosed. Likewise, the car could be repossessed if the car payments do not continue.
If you are leaving behind credit card debt and your spouse or children have not co-signed on the credit cards, you are in a gray area. If you leave money behind and have someone looking after your affairs, it can end up going to credit cards or the hospital that you owe money to. But if you don’t leave money behind and owe money, chances are your family won’t have to pay, says Michael Sullivan, personal financial advisor at Take Charge America, an agency. Phoenix-based national credit counseling and debt management company.
“With a few exceptions, creditors cannot collect from survivors,” Sullivan says. “The main exceptions concern co-signers of accounts and joint account holders. People who have signed agreements making them responsible can be held responsible for this debt. And in some states, there are community property laws that make a spouse liable for certain debts. People who lose a spouse in communal property states should consult a lawyer. ”
Can life insurance protect my family?
Yes. There are too many tragic stories of breadwinners who have not purchased life insurance and families in financial difficulty. So, if you are supporting family members, you should consider purchasing life insurance.
Since we are talking about debt, the insurance money you leave with your family should not go towards debt. Your life insurance payout goes to your beneficiaries, who decide what to do with the money, and they may well want to use the payout to pay off debts left behind. For example, if your family still lives in the house, they will probably want to pay off the mortgage and any car loans.
On the other hand, if you have left a large amount of credit card debt, as long as they are not co-signers, technically your debt is not their responsibility.
But in general, people buy life insurance so that their families have enough money to pay off critical debts, like a mortgage, and funds for things like paying for school, paying bills, and buying food.
[See: Money Moves You Will Be Thankful For.]
What debts are forgiven when you die?
In the technical sense, no debt is canceled – automatically, anyway. But generally, credit card debt and some types of student loans are the easiest to write off. Credit card companies usually have no choice but to write off unpaid debt if family members refuse to pay, and the federal government and some private lenders will usually write off a person’s debt. if that person is gone.
What if your beneficiary dies?
What if you have a life insurance policy and your beneficiary also dies? In this case, the money you leave with the beneficiary will go to their estate, and if your beneficiary has debts, the estate may pay them.
What Happens To Credit Card Debt When You Die?
Typically, credit card issuers – or debt collectors – will try to get loved ones to pay what is owed to them. But as debt relief lawyer Jeremy Heck noted earlier, credit card companies frequently write off these debts as bad.
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What Happens to Debt When You Die? originally appeared on usnews.com