Have you ever wondered what happens to your debt after you die? Will your family members be responsible for bills you may leave behind. Basically, today’s Finance Friday question is: does a person’s debt disappear after his or her death?
This topic may seem a little morbid for some people, but it is a serious question that we all should be able to answer. Many of us know that it is important to have our affairs in order and have a valid Will, but taking the appropriate steps now can save your family members a lot of heartache.
Not long ago, I received an application from one of my credit card companies. The company requested that I sign up for credit card protection for a fee each month where they would pay off any outstanding debt if something were to happen to me such as death or unemployment. If you pay off your balances each month, these companies can be more of a hassle than helpful, so I do not recommend them. But the application made me think about debt and who is responsible for unsecured debt (debt without collateral to back up the loan) that is left after a person dies. Some examples of unsecured debts are:
- credit card balances
- medical bills
- utility bills
- cell phone bills
- funeral homes
- and even car loans
Although, car loans have a car to act as collateral, because cars begin to depreciate immediately after they are driven off the car lot, they are usually no longer worth the entire car loan amount.
Who’s responsible for the deceased unsecured debt?
With unsecured debt it is important to understand that although family members cannot be held personally responsible for your debts after your death; especially if they are not co-signers or your spouse, creditors can file a claim against a deceased person’s estate for payment. The person’s estate is all of the assets owned by the deceased individual.
What if an estate doesn’t have any money for debt?
When an estate doesn’t have enough money to pay off the person’s debts a probate court will decide who will be paid (from the sell of any assets the deceased person possessed such as furniture, cars, etc) and in which order. A probate court deals with the legal certification of wills and the administration of estates of the deceased. This court handles cases for people who had a will at their time of death and those who did not. In the U.S. it is necessary for all legal channels to be met when a person dies, so their estate should legally go through the probate process. If the person did not have any assets at the time of their death, debtors will not be paid. It could also be helpful to hire a probate lawyer to answer any questions you may have regarding responsibility for a deceased person’s debts. If a debt collector contacts you about a relative’s debts and you are not legally responsible; in fact, according to the Fair Debt Collection Practices Act you can send them a certified letter notifying the debt collector that you are not legally responsible.
Did you like this article? If so, read “Have You Made One of the Most Important Life Decisions Yet?”
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