What Happens to Your Debt When You Die?   

What Happens to Your Debt When You Die?                  

A lot of families often wonder who will be held accountable by the law for the debts of a loved one who passed away. If you die and you leave this kind of obligations behind, your debt might eat up your assets that might have hoped to pass on to your heirs. There are even cases when members of the family become responsible for outstanding credit or loan balance.

Here are some common types of debt and what happens to them when you die:

Car Loan:

Your trustee can make use of your estate for paying off your car loan. The lender can also repossess the vehicle if no payments are made. If it is not possible for the estate to pay your car loan’s outstanding balance, for the most part, the person who will inherit your car can simply continue with the payments. It might help stop the lender from taking any action.

Credit Card:

Luck is definitely not on the credit card companies’ side if it is not possible for your estate to pay off your remaining credit card balances. This is because this debt is a form of unsecured loan with the debt holder not having any asset to claim.

But, in the event that there is a joint account holder, it will bet their responsibility to pay any unpaid balances. The authorized credit card users will have no liability for the balances. The spouses must pay the credit card debts that are incurred throughout the marriage if they are living in community property states.

Home Equity Loans:

The person who will inherit your house will take on the responsibility to pay off a home equity loan. The reality is that the lender can insist that the person pays back the loan right away after you die. This might require them to sell off the house. But, lenders might also work hand in hand with them to let them take over the payments of the loan.

Mortgage:

If you inherited a house or you and the deceased were joint homeowners, it will be your responsibility to pay the outstanding mortgage payments and balance. But, lenders are prohibited by the federal law from forcing the joint homeowner to pay off the mortgage of the house soon after the death of the co-owner.

The trustee can then use the estate for paying the mortgage if no co-owner exists. If there is not enough money in the estate, the person inheriting the house can take over the payments for the mortgage.

Student Loans:

A private student loan debt must come from the estate. However, if the assets in the estate are not enough, lenders don’t have any option for getting paid for such unsecured obligations.

But, if the student loan has co-signer, it will be their responsibility to pay off the rest of the loan. It is also the obligation of the spouse to pay back the student loan debts taken out throughout the marriage if they are living in a community property state. There are lenders that forgive student loan debts upon death. Federal student loans get dismissed after you die.

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