What Will Happen to Your Debt After Death?

If a decedent has a lot of debt when he or she passes away, it can complicate the probate process slightly. Family members often need to make important decisions regarding debts after death. Usually, the first thing that occurs in a probate procedure is the repayment of all debts to creditors. This means that if you have credit card payments, student loans, an unpaid mortgage or another financial obligation, your family will need to use their inheritance money to pay those costs before the finances are divided up. Relatives are not generally responsible for paying these debts out of their own finances, unless they are a co-debtor on the loan. Normally, during probate the court will set aside the necessary amount of money to pay for these debts.

While creditors are not normally allowed to collect payments from a family member of a deceased relative, there are times that they may harass these relatives anyway. If you received harassment or are being contacted and pressed to pay debts by a debt collector, then discuss the process with your estate planning or probate professionals. Some creditors may be required to swallow the cost of the debt, depending on the circumstances. Estate administrators will probably be responsible for overseeing the repayment of outstanding debts after you death.

Some debts will be discharged upon death. That is why estate planners should work closely with a probate professional that can guide them through the process and show them what debts they don't actually need to pay. The only times that a family member may be responsible to pay part of a debt from his or her personal finances is if that relative was a co-owner of the property or a co-debtor on the loan. For example, you share a car with your son and pass away, your son will be expected to continue both his half and your half of the car payments.

Credit card debt normally belongs to the credit card account holder and may be dismissed if the decedent does not leave enough money to satisfy the expenses, Creditors normally go through great lengths to collect all debts owed to them, and will contact spouses and relatives to request payment if the debtor dies. Payments on behalf of a deceased relative are accepted in these situations, but they are not required.

Individuals may be required to satisfy credit card debt if they live in a community property state where the property and assets acquired during marriage are considered jointly owned. Community property often insinuates that any debts are jointly owned as well, meaning that all costs would transfer to the surviving spouse. After a person's death, the executor of the estate has the right to ask for the decedent's credit card information. the CARD Act requires that banks provide the balance to the executor within 30 days and cannot charge any penalty fees if the balance is paid off within 30 days after the information is received.

In addition to credit card debt, a decedent may leave mortgage debt. In this situation, the lender still has the right to seek collection on the debt. A surviving spouse has the right to make payments on the mortgage to live in the home or the executor can sanction the sale of the house to pay off the existing loan. If the spouse was the joint owner of the property on the loan, then he or she will inherit the debt. It is important to note that life insurance policies are separate from the estate and go directly to a name beneficiary. This means that they cannot be used to satisfy a debt after death or usurped from the beneficiary. If you are dealing with a decedent's debts or if you are estate planning and want to make a guideline for your loved ones when you pass and they are obligated to pay off your debts, talk to a probate professional today!