When you are making your plans and enjoying the present with your loved ones you build a legacy. One of the things that people often don’t consider when building that legacy is the debt that they may leave behind in the event that they die with debt. Unfortunately, many of your debts can and will out live you and the people you leave behind could be affected by those debts. If you have already created a will you will likely have named an executor who will be responsible for taking care of your debts and disposing of your assets when you pass.
When I Die, What Happens to My Debts?
If you die with debt, these are the most common types of debts that can have an impact on the ones you love:
Student Loans: If your student loans were obtained from the Federal Government, they will be forgiven upon your death. If you took out private students loans, they can recover money from your estate or from a co-signer or guarantor. In the event that your estate has exhausted its resources, the private loans will also be wiped out.
Home Loans and Mortgages: If you own a home jointly with someone else or you wish to pass your home to a loved one and you die with debt on the property, they are responsible for continuing to pay your mortgage(s) after you pass. While the government protects you from having the loan called in upon your death, the note will have to continue to be paid until those you leave behind decide what to do with the property
Car, Boat, Motorcycle Loans: If the payments on these types of loans are not made then the person who lent you the money can take possession of the vehicle. The person you leave the vehicle to will have the option of continuing to pay on the note but there are other probate concerns that often arise with transfer of title but that is something you may need to speak with a qualified probate attorney about.
Credit Card Debt and Medical Bills: While these types of debt are not secured by collateral (a car, house, etc.) if your estate has remaining funds they can be recovered by the credit card company or medical firm. If the estate has no remaining assets then your debts are generally wiped out. In the event that that you have a JOINT credit card account, the non-deceased person will be on the hook for the debt incurred by you. This generally doesn’t apply to an authorized user but if the primary passes away and you do not intend to continue to pay on the credit card, you shouldn’t continue to use that card.
Taxes: If you die with debt owed to the IRS or your state department of revenue it can create a headache for those you leave behind. If you die owing back taxes and you have filed jointly with a spouse, your spouse is liable for the entire amount of the taxes. Additionally, the IRS can try to collect any tax debts owed from your estate, even if you did not file jointly with your spouse. The IRS does allow certain exemptions but it would be advisable at that point to consult a qualified tax attorney to discuss your options.
These situations can be avoided
If you need to file bankruptcy, get help now. Reach out to a qualified bankruptcy attorney, tax attorney or financial planner to discuss your particular situation. Ridding yourself of debt before you pass might be a good option for you. The best thing you can do for your loved ones is to prepare your estate so they aren’t hit with unpleasant surprises in a time of profound grief. At the very least, you should have a last will and testament in place. You should also keep those you love apprised of your financial situation. Provide them with a list of assets and liabilities, where you keep safe deposit boxes, a list of passwords and combinations to safes and lockboxes to assist your loved ones in closing out your affairs when the time comes. While your creditors are allowed to contact your heirs about collecting on debts when you retire, they must follow the guidelines set out the the Fair Debt Collection Practices Act.