Your debt may outlive you.
Death and debt.
These topics are often avoided.
Few people really want to consider the brevity of their lives.
Nobody wants to dwell on the strain of their debt.
According to a recent U.S. News & World Report article titled “What Happens to Credit Card Debt When You Die?,” the cruel reality is you may die before your debt expires.
If you have a hefty debt, you may leave debt instead.
Your estate is responsible for paying off your debts when you pass away.
If your debt is large, it may deplete all assets in your estate.
What if your estate assets are not sufficient to cover your debt?
Will your loved ones be responsible to cover the remainder of your bills?
This depends on a few factors.
Was your loved one a co-signer?
Was your property or business owned jointly?
Did you die in a community property state?
If your spouse jointly owns a credit card with you, he or she must continue to make payments.
Entangling your loved ones in your debt is doing them an unkindness at best.
To save them from this, you should work on paying down your debt as soon as possible.
What if you cannot?
How are the debts paid after you die, generally speaking?
Your last will and testament is submitted to begin the probate process, usually by your executor.
Even if you have no last will submitted to probate, a creditor can even open a probate of your estate.
Either way, the probate court will ultimately oversee the just settlement of your financial affairs.
The executor is responsible for paying the creditors and settling your estate.
On the other hand, if you had no will nominating an executor of your own choosing, the court will choose an individual to administer your estate.
Certain assets may be protected.
For example, life insurance policies paid directly to the beneficiary.
They will not be included in the assets available to pay bills.
Debts are actually settled in an order of priorities under state statute.
The top priorities are secured debts like car loans and mortgages.
Attorney and administration fees are paid next.
Last to be paid are unsecured debts like credit card debt.
There are ways to protect some assets for the benefit of your children.
Work with an experienced estate planning attorney and financial planner to pay down your debt and help provide security for your family when you pass away.
Reference: U.S. News & World Report (August 19, 2019) “What Happens to Credit Card Debt When You Die?”