Who Will Cover My Debt When I Die?

Did you know that Americans die with an average of $62,000 in debt? So, what happens to that debt?
The answer depends on a variety of factors, including the type of debt remaining, whether there was a cosigner on any of the debt, and the value of the deceased person's estate.

In most cases, any debt remaining after your death will be paid by your estate when you pass away, and creditors can make claims against your estate during the probate process. If you died with a will and named an executor of your estate, he or she will usually use the assets you left behind to pay off your debt. If you don't have enough assets, creditors are typically without recourse and the debt is forgiven. However, if you had a secured loan, like a mortgage or a car loan, the debt would need to be paid for your family to keep the asset. For instance, if you leave your home to your family, they'd have to continue to pay the mortgage to keep the house.

Note that creditor claims will take precedence over your instructions as to what happens to your assets. If you stated in your will that your bank account is to pass to your children, but you owed money to a creditor, the money in the bank would first be used to pay the creditor before your children could inherit. If your estate doesn't have enough assets to satisfy your debts, creditors may seek the payment from any cosigners on the loans. Cosigners share legal responsibility for debt and will be held 100% responsible for paying the remaining balance.

One potential exception to this general rule, is for certain types of student loans. For example, a Parent PLUS loan can be dischargeable due to a student's death, and some private student loans offer a death discharge. Federal student loan debt is typically forgiven when the borrower dies.

Creditors can also attempt to collect from co-borrowers if you had a joint account. Therefore, if you and your spouse had a mortgage together or shared a credit card, your spouse would be expected to continue paying the bills after your death.

It’s important to note that creditors may attempt to guilt family members into paying the debt after their deceased loved one's death, even if all remaining assets have been exhausted. Additionally, in states with community property laws such as Washington, a spouse may be required to pay off debt belonging to a deceased spouse using community property.

If you are concerned about your loved ones being stuck with your debt after you die, make certain that you understand the types of debts you have and the rules for repayment. We recommend you work with an estate planning attorney to protect your assets and ensure your family can still inherit without being burdened by your debt.

At Tacoma Elder Care we help you understand the importance of estate planning, paying for long term care without going broke, asset protection, and life planning.

Having a life care plan is essential in protecting you or your loved ones’ future.

Contact us today, or attend one of our FREE Workshops, to learn more about how to plan for your future.
Tacoma Elder Care serves the legal needs of clients throughout Washington by planning and settling estates, special needs planning and elder law issues. Our number one priority is helping local families take decisive legal actions to protect their estates and their future.

For more information reference an article by: Fox Business (December 27, 2018) “What Happens to Your Debt When You Die?”