While it sounds somewhat morose to think about death and debts, it’s something we all must consider at some point. Nearly everyone dies with at least some debt – even if it’s just some monthly bills or final medical expenses. That’s why it’s important to know who’s responsible for paying these debts in the event of your demise.
Dealing with Creditors
Typically, your estate will be used to pay off creditors, as they are entitled to payment. However, if there are large balances leftover or undisclosed loans and/or debts, not everything may be covered. Whose responsibility does it become then?
There are some significant differences between secured and unsecured debts. When you die, secured debts become the responsibility of your heirs. They’ll either have to keep making the monthly payments or sell the property in order to repay the debts. However, unsecured debt is handled a bit differently.
Your unsecured debts include things like credit cards and student loans. How these debts are handled may vary by state laws and the nature of the bills themselves.
Generally speaking, some things are protected from creditors and other’s may not be. When you die, no, creditors seeking payment for unsecured debit cannot collect from your life insurance. They also cannot collect from retirement plans with named beneficiaries, jointly-held properties, or pay-on-death bank and brokerage accounts. However, if beneficiaries aren’t named, these things may not be entirely safe from creditors.
Debts with Co-Signers
Signatures matter – a lot. If a debt had a co-signer, they may very well still be on the hook for it. The same is often not the case for “authorized users,” however. (However, if you do share a card with someone who’s died, there are some things to consider. For starters, you shouldn’t use the card if the estate doesn’t have the money to cover the expenditures. That could be considered fraud.)
Spouses may or may not be liable for certain debts, depending on when they were incurred and various state laws.
Medical bills often do become the responsibility of the deceased’s spouse. Essentially, doctors have to get paid.
If your spouse is unable to handle the burden, the healthcare provider may or may not write off the account.
It’s important that survivors stand their ground. Everyone e should know what they owe and what they don’t and should take a tough stance on it. If a creditor claims a debt has been willingly assumed, it’s often best to tell them no, it hasn’t.
That said, it’s important to ensure your loved ones are aware of their rights.