What happens to your debt after you die?

The other day a friend of mine and I were outside at the bar smoking cigarettes and drinking a few beers. As is often the case with some of my guy friends, the conversation includes some jokes that could be considered morbid. In the middle of our conversation, he cracked a smile at me and said: “You need to quit this unhealthy lifestyle, or you’ll die and leave your debts to your mother.”

I grinned and told him, “I’ll die for my sins, but my debts will be forgiven.”

A lot of people make the mistake of assuming that when they die, their debts will become the burden of a family member or loved one. This is a misconception and it is often not the case that anyone would become responsible for your debts after death. With the topic fresh on my mind, I decided to actively investigate and report the truth about

With the topic fresh on my mind, I decided to actively investigate and report the truth about this huge fear.

First, let’s tackle the cases where debts are responsible to a loved one.

  • If you’re married and live in community property state, then you may have to pay for your spouse’s debts after death, unless their debt predates the marriage. Arizona, Idaho, California, Louisiana, Texas, Nevada, Washington, New Mexico, and Wisconson are the only community property states in the union.
  • If you co-signed on a loan, then you’re responsible for any debt, however, that goes without saying; You’re responsible for the debt regardless of your co-signees mortality.
  • If you are a shared account holder, then you owe whatever debts are connected to that account.
  • If you are a joint homeowner or inherit a home, then you must pay the mortgage, however, federal law forces lenders to extend a grace period immediately after the deceased’s time of death.

Boom! That’s it. If a debt collector were to call your family members and pursue them without any of the above-mentioned reasons as a legal excuse, then you can ask to have calls stop or report them to the FTC.

So who pays the debt?

When you perish, all of your assets are collectively accumulated into an estate to be handled by an executor. This is someone you can choose to put in control of your will. Everything that you own prior to death is taken stock of and used to pay for what you owe by the process of probate. If you do not own enough to handle debts, then those debts become insolvent.

This accounts for all student loans, car payments, credit card bills, etc. Federal student loans are pardoned, and some private lenders will clear student loans as standard procedure.

In general cases, 401k, IRA, employer pensions, and other beneficiary accounts do not have to go through the probate process, however, every state has different laws that account for probate so it’s best that your executor does a double check.

So there you have it.



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