Have you ever wondered what happens to your debt when you die?
Do you think you bring your debt with you to the grave?
Well we certainly don’t recommend testing that theory.
You’re spouse and children might get stuck with the bill after you pass.
But sometimes that’s not always the case.
Here’s what happens to your debt when you die.
Credit Card Debt
A credit card in your name means you have to make repayments. When you die, your spouse and family aren’t responsible for any balances left on your credit cards . The creditors might have to take a hit. But your spouse or children are safe from this debt.
An exception would be if the card has a joint account between two people or more people. In that case, the other account owners are responsible for anything that is due on the card.
Another exception is if you live in a community property state.
These states are:
- New Mexico
In the states mentioned above, spouses can be liable for the credit card debt of their deceased partner.
Creditors and Executor
When a person dies certain debts get transferred to the deceased person’s estate. An executor usually gets named to a will, and this person handles the financial affairs of the deceased. This will include their debts.
A smart way to structure your assets while you’re alive is to make beneficiaries of policies or bank accounts. A specific person rather than an estate.
The estate executor should notify the proper authorities about the person’s death. Certain debts get paid by using the estate. But assets passed on to beneficiaries won’t be subject to creditor collection.
If a survivor was a co-signer to a credit situation, then paying off the debt becomes their responsibility.
If you are an authorized user of a credit card holder’s account you must stop using the credit card once the person in question dies.
What about the distribution of assets?
The distribution of assets won’t take place until all outstanding debts get paid off. If assets get distributed prematurely, and the estate isn’t large enough to cover debts, it is possible that the heirs will have to pay back the debt.
What happens if the estate doesn’t have enough money?
If there is no estate, or the estate doesn’t have enough money, creditors will just have to take the loss incurred. If creditors contact you as the next in line relative or spouse, prepare to prove that there is no available estate through the documents you have to present.
The best action for you to take is to hire a probate or consumer law attorney. This is a good idea when there is a lot of money involved and you don’t feel comfortable doing it alone.
Credit Card Insurance
A way to protect your heirs from having to perhaps pay for your credit card debt is to have a credit card insurance policy. Just be sure the policy term is long enough to be active after you pass on.
What about wills?
Having an authorized will protect your heirs from the rigors of probate court. Your will stipulate how to distribute assets. But a will does not apply to debts. The executor can’t distribute the assets until the debt gets paid. A way to help your heirs is to not take on any long term large amount of debt.
Let your heirs know what type of debts they won’t be responsible for once you are no longer around. Tell them It would be a good idea to get the advice of a professional before you pay anything. If you do make a payment a creditor could claim that you have accepted the responsibility of taking on the debt.
It is always good that you know your rights concerning this matter. You must know that you are not responsible to pay debts that you have not signed up for by contract. No one can leave their debt to you even if you are the person’s spouse.
For people with assets that are reasonably substantial it is up to you to structure your affairs in so creditors don’t go after your loved ones. One such way would to have enough of a life insurance policy that it would cover any debts that fall to your heirs after you pass.
A smart individual should always name a person as a beneficiary, and not an estate. Creditors can easily lay claim to the assets of an estate. A person that designated as a beneficiary is not subject to go through probate court.
The way life can hit you with something unexpected out of the blue, it is a good idea to get your affairs in order in a way that will aid your loved ones left behind when you leave this world for good. For more information on this subject click here.
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Be proactive today and don’t leave your debt behind for your family members to deal with!
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