DISCLAIMER. The information provided in this article does not constitute and is not intended to be legal, financial, or credit advice; instead, it is for general informational purposes only.
Losing a loved one is difficult in many ways. Funeral arrangements and estate matters need to be settled in the midst of grief – and there are many questions. For example, what debts are canceled upon death? Can your family members’ creditors meet? they now?
Technically, personal debts are not forgiven upon death. Instead, they become part of the deceased’s estate. We’ll explore what that means in practice in this post, and we’ll answer a few other questions as well. The laws and regulations can vary greatly from state to state. It is important to seek advice from an attorney who can help you control how you handle a loved one’s debts after they have been paid.
What Happens to Debt When You Die?
Personal debts that the borrower himself created without a co-signer usually go straight to the estate – unless the testator was married and lived in a jointly owned state. (We’ll cover what happens to communally owned debt a little later.)
Debt held together is a little different. Several different types of common debt go straight to the co-signers with no probate conducted. Let’s take a closer look at five different types of debt to see what could happen after the main debtor dies.
Joint mortgages go directly to the co-borrowers who are responsible for the loan. Mortgages held by a borrower – i.e. the testator – are transferred to the listed beneficiaries, who are then responsible for the loan. If the beneficiaries are unable or unwilling to take out the loan, they can instead sell the property to pay off the debt.
If your loved one did not list any beneficiaries in their will after their death, their pledged property may be forcibly auctioned off. At that point, your bank will sell the property to collect the mortgage debt.
Car loan debt
Auto loans that go under the common name usually go directly to the other borrower. If there is no co-signer and the estate is able to pay off the existing car loan, they will do so and then give the car to the listed heir. If the estate fails to pay off the loan, the testator can sell the car to cover the debt. When you are eligible for or able to pay for a car loan her borrow in full, but you can keep the vehicle. If no one is able to repay the loan, the lender can repossess it.
Credit card debt
The joint credit card debt goes directly to the other borrower. Credit cards with authorized users are different, however – unlike co-signers, authorized users are not responsible for debt.
If your family member dies with outstanding credit card debt, the lender can try to collect the debt from their estate. When the estate runs out of cash to cover this revolving debt, it is usually simply written off.
Student loan debt
Federal student loans and PLUS loans are laid off when borrowers die. Student private loans behave similarly to any other type of personal loan – if there are co-signers involved, they will be responsible for the debt. If there are no co-signers, the student loan debt must be paid off from the testator’s estate – sometimes immediately.
Medical debt can be more difficult to understand than other types of debt. If your family member died due to illness debt, you may want to speak to an attorney to understand what you are responsible for. For example, under a legal regulation called the “Doctrine of Necessity” in some areas, you may be responsible for your spouse’s medical debts when these are considered a “necessary” expense. This also applies if the invoices are only made out in the name of your spouse and you have not signed them. Another exception would be in the case of a child – the child’s parents remain responsible for the medical expenses.
Many small medical debts are paid off when patients die. Higher medical debts, like other significant debts, can fall into the estate of the deceased.
9 Things You Should Know About Afterlife Debt
Accept an estate is available to you to pay off your loved one’s debts, here are ten things you should know about afterlife debt.
1. The executor deals with the debt
After the death of your loved one, direct all debt-related correspondence to the administrator of the estate. As soon as the person dies, their estate is born – and with them an estate administrator. Some people appoint executors before they die, but in other circumstances executors are appointed by the courts.
Executors take care of all financial matters related to the deceased’s estate, including debt settlement. If you receive unexpected mail from loved ones’ creditors, notify the executor immediately.
2. Notify creditors and credit bureaus
Creditors and credit bureaus need to find out about your loved one’s death as soon as possible. This is another task for the executor. Here’s what the executor needs to do:
- Notify all three credit bureaus – Equifax, Experian, and TransUnion – of the death and ask them to include a “Deceased: No Credit” note on the person’s record to prevent identity theft.
- Obtain a copy of the deceased person’s credit report to see what kind of obligations they had.
- Reach out to all of the deceased’s creditors to let them know that the person has passed away.
- Contact the Social Security Agency to make sure the person’s death is recorded.
- Send copies of the deceased’s death certificate by registered mail to all three credit bureaus at the following addresses:
P.O. Box 2000
Chester, PA 19022
P.O. Box 2002
Allen, TX 75013
P.O. Box 740260
Atlanta, GA 30374
3. Find out who is responsible
Before you proceed, make sure that your co-signers and co-debtors are aware of the death of your loved one. Remember – responsibility for mortgages, credit cards, student loans, and others together Debts automatically pass to the surviving account holder. Shared responsibility Not apply to additional cardholders or authorized users.
4. Stop using credit accounts
Additional cardholders and authorized users may not re-debit the accounts of the testator. Further use of cards associated with the deceased after being informed of the death of the person could be considered a fraud. At this point, authorized users should apply for their own cards.
5. Keep the property intact
Don’t distribute valuable possessions such as jewelry and antiques just yet. Pay off debts first, and then divide any remaining physical assets. When you distribute assets In front When debts are sorted out, the beneficiaries can end up being liable for that debts through a proxy.
6. Negotiate with creditors
If you are a surviving partner and have difficulty paying joint debts after your spouse dies, speak to your creditors. Many lenders are personable and will work with you to make sure that your credit stays intact. Explain your situation and inform them of any outstanding financial obligations and of all incoming life insurance funds.
7. Be aware of community ownership
In most states there are surviving partners Not are responsible for the personal debts of their spouses. In jointly owned states – Alaska (optional), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin – are. Surviving spouses in these states are responsible for the debts of their deceased partners, including any debts they were unaware of.
The determination of common property only extends to debts that have arisen while the wedding. Accrued debt In front marriage is not a debt of common property. If you live on a community property and need advice, contact a reputable estate attorney.
8. What happens if there is no estate?
So what happens to your debt if you die without an estate – or if your estate isn’t big enough to pay for it all? In short, the debt is being written off. With no discount to pay for it, it is considered uncollectible and will be given away.
9. If in doubt, consult an attorney
We strive to provide accurate information, but we are not lawyers. If you are confused and need advice, don’t hesitate to turn to a reputable consumer or inheritance lawyer. They aren’t always cheap, but the service they offer can be priceless.
Prepare for Debt After Death
There are a few things you can do to ensure that your outstanding debts are paid back quickly and efficiently after your death. First, create a clear will and name an executor. Then you should consider bundling numerous small debts into one consolidation loan. Finally, consider getting life insurance to cover any outstanding debt. All of these things can help make life easier for your loved ones.
If you’re not sure how much you owe, sign up for ExtraCredit at Credit.com. The credit snapshot you get can help you sum up your financial obligations before they become a burden.
The Post Debt After Death: 9 Things You Need To Know first appeared on Credit.com.