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Who’s Responsible for Your Debt After You Die?

cemetery-1758349_640Regardless of what age you are, or what stage of your career or life you’re in, it’s important to think about estate planning. This is particularly true if you’re married with a family of your own because you want to protect your spouse and your loved ones if something happens to you.

One important area of estate planning is debt, and more specifically, what happens to your debt after you die. It’s critical to learn about debts and where they go after your death to ensure you really are protecting your surviving spouse and loved ones.

Home Loan

Mortgages can be one of the trickiest areas of debt after death, particularly if you’re married. One option for a co-owner is just to take over the payments on the mortgage, which is the simplest option, but on the other hand, if it’s a home equity loan, the lender may be able to force the person who inherits the loan to repay immediately.

This can lead to the house having to be sold or it may be taken by the lender.

Often, survivors can be protected if the homeowner takes out a life insurance policy, which would allow them to pay the loan in its entirety if necessary.

Credit Card Debt

With credit card debt, the estate can be forced to pay it, and this can mean survivors receive less of your assets or they receive no assets at all.

In addition to credit card debt being paid from liquid funds in the estate account, if there’s not enough to cover debts then the executor of the estate may be forced to sell assets to make up for the difference.

If your spouse or a family member is a co-signor on a credit card, they can be personally responsible for the debt in the event of your death.

Student Loans

Much like with credit card debt, the estate can be forced to pay off student loans, but not relatives of the person who passed away. For example, if your spouse has unpaid student loans and passes away, you aren’t personally responsible for them.

It can also be difficult for lenders to have any course of action if the estate doesn’t have sufficient resources to pay the loans.

Additionally, when a borrower dies federal student loans are discharged, although of course, not all loans are federal.

What it all boils down to is that in general, your spouse and family won’t be personally responsible for your debts after you die, unless their name is also on the debt. What is equally important to realize, however, is that debt doesn’t just disappear after you die.

Instead, your estate is left to pay most debts, which can mean your heirs receive nothing once everyone is paid off. If you want to protect your spouse and your family, you should consider working with a qualified estate lawyer, and also having a life insurance policy that’s sufficient to cover your debts if you have any substantial ones.

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