Debt doesn’t just go away when you die, but that doesn’t mean your loved ones are always responsible for it. Instead, your estate will need to cover the debt using available assets, while the Fair Debt Collection Practices Act ensures that family members are not unfairly targeted for payment. Here is an overview of what happens to credit card debt and different types of property or personal mortgages when you die.
Key Points:
- Responsibility for bank debt, medical debt, car loans, private student loans, federal student loans, etc. does not necessarily transfer to family members upon someone’s death.
- Debt obligation after death generally goes to the person’s estate, where debts will be paid with any assets from the deceased relative.
- One may be responsible for a deceased person's debt if he or she is a joint account holder, co-signer on a loan, or, in some cases, a surviving spouse.
Debt After Death
While a deceased family member's remaining secured debt doesn’t go away, the remaining family won’t inherit debt obligation after death in most cases. Instead, when someone dies, responsibility for the debt goes to the deceased person’s estate. The estate executor or administrator is typically responsible for paying off the deceased’s debt according to the estate plan and the estate’s finances rather than his or her own money.
Specific laws vary by state, though, and there are some exceptions to these rules. For example, some states do require family members to pay off a deceased relative’s unsecured debt. Responsibility for debt may also transfer to a living relative in certain circumstances, including those discussed below. Look into your state’s property laws when estate planning to ensure your family is adequately prepared.
If all else fails, debt relief may be able to ensure a family’s financial security after a relative’s death.
Co-Signed Loans
Any party who co-signed a loan with the deceased is responsible for any remaining debt. When there isn’t enough money on hand, life insurance may help cover debt from a co-signed loan, even if one of the signers is still alive. However, some of the life insurance may need to go toward the deceased relative’s debt that isn’t co-signed.
If you suddenly become responsible for the entirety of a loan that you co-signed with the deceased, budgeting may help keep you up-to-date on payments. Create a budget or update your existing budget to include the additional payments.
A good example of this is a mortgage loan. The co-signer is still responsible for the mortgage because he or she signed the loan. He or she will take over the payments after the deceased has passed. If there is no co-signer, the remaining mortgage will be paid off by the estate. Usually, this is done by selling the home.
If a living family member inherits the home, the remaining outstanding debt payments are not his or her responsibility. The loan will need to be paid off by the estate plan, and paying off the deceased relative’s debts may require selling the home.
Joint Accounts Upon Death
Any living party on a joint account will be legally responsible for any existing debt. However, there is a difference between a joint account and being an authorized user on an account. Authorized users may not be responsible for debt accumulated on a deceased person’s account.
If you are unable to cover the entirety of a joint account, you may choose to make more money in order to pay off the debt. This can help in conjunction with the budgeting strategy as you’ll have more income to cover your bills and prevent you from going into debt.
Is a Spouse Responsible for the Deceased’s Credit Card Debt?
As long as the spouse is a joint owner of the credit card, he or she will be responsible for the deceased’s credit card debt. This does not apply to any authorized users on the account, just joint account owners. Children or other relatives with account access but no ownership will not be responsible for the deceased relative’s debt.
How to Reduce Debt Before Death
If you are struggling with debt and are worried about passing it on to your loved ones, create a comprehensive budget to track your income and expenses. Once you have a clear picture of your financial situation, prioritize your debts, focusing either on high-interest debts first (debt avalanche method) or smallest debts first (debt snowball method), depending on your preference and motivation.
Also, look for ways to increase your income, such as taking on a side job or selling unused items, and work on reducing your expenses by cutting non-essential spending and lowering bills where possible.
Don't hesitate to negotiate with your creditors for lower interest rates or more manageable payment plans. Consider debt consolidation options, which allow you to combine multiple debts into a single loan with a potentially lower interest rate, or explore balance transfer opportunities to move high-interest credit card debt to a card with a 0% introductory APR.
For those seeking more structured debt relief options, several avenues are available.
Debt settlement involves negotiating with creditors to pay less than the full amount owed, while credit counseling provides professional advice on managing debt and creating a viable repayment plan.
Debt consolidation loans can be used to pay off multiple debts, potentially at a lower interest rate. In more severe cases, bankruptcy might be considered as a last resort, though it comes with long-lasting consequences. Some creditors also offer hardship programs, providing temporary relief for those experiencing financial difficulties.
Each of the above has its own pros and cons, so seek professional advice before deciding on the best course of action. A ClearOne Certified Debt Specialist can help you explore your options and advise you on the best one for your circumstances.
How to Deal with Someone's Debt After They Die
If the deceased does not have a spouse, the estate will be used to pay off as much as possible. Anything else will not be paid back to creditors. Any living spouse still has debt relief options, including using life insurance funds if possible, to pay off the existing credit card debt.
The funds in the estate can be liquidated or assets sold off by the family to cover the debt. If the deceased had life insurance, those funds may also go toward any existing debt. If the deceased relative’s debt can’t be completely covered by the estate, the creditors generally can’t go after the family for the money.
ClearOne Advantage can help you get your finances under control by helping you pay off your debt. Call a ClearOne Certified Debt Specialist at 866-481-1597 today to discuss your situation, explore your debt relief options, and get a free savings estimate.
The information provided is for informational purposes only and is not intended to provide financial advice. ClearOne Advantage does not provide financial or legal advice. Please consult a certified financial advisor for individual financial needs.
