Debt and Death: What You Should Know

A lot of people are under the misguided impression that debts just magically disappear after they die. Unfortunately, that’s not true. Most bad debts don’t go anywhere just because a person passes on. Instead, those debts can chip away at (or even completely eliminate) assets. They might also pass on to loved ones or take away from what you planned to leave them, so obviously, it’s very important to get those bad debts paid off in your later years!   

What Happens After You Die?

Death isn’t something anyone really likes to think about, but, unfortunately, it’s going to happen to all of us eventually. When you die, you will leave behind an “estate,” which is basically just a fancy term for everything that you owned, including all assets, when you died.

Your debts will be factored into your estate too, and your executor will enter into a period known as probate, in which assets are used to pay off any outstanding debts. If there aren’t enough assets to pay off the debts, this could cause certain problems for your loved ones, which is the last thing you want.

Your Home

Homes that are under mortgage or that are associated with home-equity loans are a bit of a tricky area, financially speaking. When you die and you have a mortgage or home equity loan that’s not fully paid off, the law does kind of lean toward protecting the lender.

However, lenders can’t do just anything they want. For example, they cannot force a co-owner or co-signor to pay off the mortgage immediately after the other owner or signor dies. Also, if the house has been left to someone, in most cases, that person can just pick up where the previous owner left off, making regular, doable mortgage payments.

Keep in mind, though, that these rules don’t apply to home equity loans. Lenders can require these to be paid off immediately after a death, which may mean that the property will need to be sold.

Credit Card Debt

Credit card debts are another murky matter when someone dies. Fortunately for the deceased, though, credit card debt isn’t secured by assets. Thus, the only person who could possibly be held responsible for the debt would be another account holder on the same account. Authorized users and others are not responsible.

Other Debts

There are all kinds of other debts that a person might leave behind after he dies, and each will be subject to its own rules for how it will be handled. If you are concerned about a particular debt or just want to get properly prepared for the future, it’s smart to contact a financial advisor. They can help you to understand which debts will be taken from your estate and which ones won’t, and they can also help you to get your debt under control and to make plans to provide for your family and loved ones after your death. The sooner you can work on these matters with a professional, the sooner you can move on from them and focus on living your life to the fullest!