Throughout our lives, we often have a need to take on certain debts. We accept a mortgage or a car loan so we have a place to live and a way to get around. Credit cards can be a huge help when we come up against emergency situations like a busted water heater or a massive car repair. Student loans float us through post-secondary education or training until we get a job that helps us pay the loans back.
Sometimes, when taken all together, these debts can become overwhelming. We may die with a significant balance due. It’s an understandable concern then, to wonder who will be responsible for these debts if they are not paid in full before we die?
The answer is, it depends
When it comes to post-mortem debt collection, it can be a bit of a gray area. In general, the debts of the deceased are not the responsibility of the children, spouse or beneficiaries unless they co-signed on any of the loans or they were joint account holders. It also depends on whether or not you had a will or trust set up before you died.
If you leave your house or car to someone in your will, they will be responsible for continuing to pay the mortgage note and car loan or they will risk foreclosure and repossession, respectively. Another option is to sell the property to pay off the remaining amount owed and keep the profit.
Credit card debt often gets written off by the creditors and student loans are discharged by the government once you apply for loan forgiveness and provide them a copy of the death certificate. Again, there are situations in which a co-signer or joint account holder would continue to be responsible for these debts.
Medical bills will not become the responsibility of your children when you die, but your spouse could still have to pay them. Sometimes, you can negotiate with the care provider and pay a reduced amount or have the debt discharged altogether.
Even though these debts can often be written off or discharged, creditors may still come after surviving family members to receive their payment, especially if the estate has considerable assets. Speaking to someone familiar with estate planning can be a valuable guide in protecting your loved ones from harassment by lenders in the event of your death.