What Happens to Your Debt When You Die?

It’s a strange and seemingly dismal question, but have you ever thought about what happens to your debt when you die? Chances are you probably haven’t given it too much thought.  

But here’s the thing: did you know that nearly 73% of Americans leave behind some form of outstanding debt when they die? Not only is this number significant, but it further solidifies the notion that, even though we may not enjoy thinking about our debt after death, it’s necessary if we carry a considerable amount.

While you might think that your financial problems go with you when you pass away, that is certainly not the case. Read on to find out how your debt can continue to live on after you die.

How Your Debt Is Initially Handled After Death

When you pass away, your debts become your estate’s responsibility to pay back. Your estate consists of everything of financial value that you own at the time of your death, including your bank accounts, home, vehicles, jewelry, etc. A special court will validate your will and authorize your estate to first pay back any existing debt you owe to creditors and then, if there is anything left, to the beneficiaries you requested in a legal process known as a probate. 

Depending on how much debt you have and your assets’ value, you may leave your loved ones with nothing. Not exactly the lasting legacy you had envisioned. 

How Your Debt Can Be Inherited

Depending on the types of debt you had, the following individuals could become financially responsible:

  • Cosigners – a person who has cosigned for you has agreed to pay your debt in the event that you default on a loan. This means, even if you die before paying it off, that person is still responsible for taking care of that debt.  
  • Joint owners or account holders – the most common example of a joint owner is having a mortgage with your spouse. If your spouse is still living after you pass away, they will need to continue making the monthly mortgage payments. 
  • Spouses – if you live in a community property state, your spouse could be responsible for taking care of any debts accumulated throughout your marriage. 

What Happens When Your Debts Can’t Be Repaid

When you die, your debts become classified as either secured or unsecured.

Your secured debts, such as mortgages or auto loans, are backed by collateral. In the event that the remaining balance is unable to be paid, your assets can be taken back by the issuing lender.

Unsecured debts such as credit cards or student loans are a different story. If these debts are unable to be paid using the assets from your estate—then your debt remains unpaid and your creditor is basically out of luck.

Speaking of creditors, it’s important to note that while debt collectors can legally contact a deceased person’s spouse, parent, or beneficiary of an estate to discuss any outstanding debt, under Federal Trade Commission rules, they are not authorized to force a family member into paying a debt using their assets. 

While it’s difficult to think about what may happen when you die, it is crucial to remain vigilant in planning ahead. Preparing today means that, when the inevitable happens, you can rest assured knowing you helped prevent your loved ones from dealing with a difficult financial situation.

If you are ready to take control of your debt now, reach out to ACCS for help. Request a Custom Debt Relief Plan today. Our debt specialists will work with you to find the best solution to meet your current and future needs.

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