Some people have the misconception that when they die, their debts will be wiped out. That’s unfortunately not the case. Debt after death is real. If upon your death you still owe creditors money, they’ll still come after you. That is, unless your family settles your financial obligations right away.
Financial Planning While You’re Still Living
Any debt after death can easily eat up properties and assets that you’d hoped to leave to your family. When you die, your debts will become the responsibility of your estate. The estate is all the assets and properties you owned at the time of your death. An executor is the person in charge of handling your will and estate. They’ll use your properties to settle your debts. They could simply write checks from a bank account or sell your assets to get the money needed.
But what happens if you don’t have enough assets for your executor to pay your outstanding payments? Can creditors demand that your family settle your financial obligations? Can the bank transfer your debt to your spouse or parents?
Collecting debt after death varies from one creditor to another. Not all lenders have the same policy when it comes to collecting payments from a deceased client. As such, it’s important that you talk to your creditor to find out the specifics about debt after death.
The best thing you can do for yourself and your loved ones is to make a will and have it registered. Dying without a will can create financial—and even mental—havoc for your surviving family. If you have a spouse, it’s also important that your partner knows the fine points of your plans. Otherwise, inform your estate executor.
Dealing with Credit Card Debt After Death
If your credit card is solely in your name, any debt after death will likely be regarded as a loss by the creditor. Also, if your estate runs out of resources to cover your credit card balance, the credit card company is out of luck. A credit card debt after death is not a secured loan like how home and car loans are.
But if you have a joint credit card account, your partner will have to continue the payments. When the debt is settled, they must update the account. That way, no fraudulent activities would happen.
If your credit card has authorized users, they are not responsible for paying the balance.
Dealing with Home and Car Loan Debt After Death
Home and car loans are secured loans. Thus, lenders can collect payments from your executor or spouse after your death. If you’re married, chances are your mortgage is co-signed by your spouse. As such, your partner can continue paying the home loan without going through extensive legal options. If there is no joint homeowner, your executor must handle paying your mortgage. If the estate money is insufficient, whoever inherits the house can take over the payment.
As for a car loan, your executor can pay your debt out of the estate. As with a home loan, if the estate doesn’t have enough money, whoever inherits the car can handle the debt. Otherwise, the bank or the lending company can repossess the vehicle.
Protect Your Family with a Life Insurance Policy
If you have a large amount of debt, you need to have a financial plan set up to settle your accounts. That way, when you die, your surviving family won’t have to suffer a financial hit. The best option you have is to get insurance coverage. The payout for a standard life insurance is non-taxable. After your death, your spouse can freely use the money however they see fit.
Most credit card companies have life insurance policies tied to their cards. But getting a life insurance from a credit card company isn’t the smartest decision. In general, the interest rate that will be offered to you will depend on your outstanding balance. That means the interest rate can be astronomical. Your best bet is to directly talk to an insurance agent. Discuss life insurance policies and payments.
