Have you ever wondered how the deceased outstanding debts are settled? Are they transferred to others, settled as debt purgatory or are they merely forgotten? All these options are possible depending on several circumstances like where you stay and the kind of debt.
Millions of Americans get buried in debts, literally. A recent survey by CreditCards.com conducted on 1,114 adult’s shows that 65% of American millennials are living in liabilities, while 83% of the retirees are unsure if they will clear their dues.
The survey further revealed that 73% of the people who died between October and December 2016 left an average of $61,554 outstanding debt. Usually, these debts result in unpaid mortgages, student loans, car loans, and credit cards as well. The only good news is that the survivors do not always get stuck with the outstanding dues.
When a person dies and leaves a debt, the estate of the deceased is held responsible for the repayment of the debts. Commonly, an executor, administrator or personal representative from the estate finance is chosen to handle the case, which they pay using the estate’s money and not their cash.
Apart from the legal representatives, no one else can be held responsible for the deceased debt repayment. However, one can exempt the rule in the following cases:
The Federal Trade Commission allows the debt collectors to contact the deceased parents or spouse if the dead was a guardian, minor or administrator. However, the creditors can’t take your life insurance or retirement accounts benefits.
The mentioned beneficiaries enjoy those benefits and thus are not part of the probate process. Since life insurance policies are protected from the creditors, the procedures can be used to protect the surviving family members who would be responsible for the debts. Usually, the life insurance payouts are not taxable.
Dealing with the demise of a dear one is devastating. The situation might even become worse when you are left with debts to sort out; it might affect you emotionally, toll your wellbeing and also change your finances. However, you can lessen the burden by following the above tips then choosing the right team of advisors to recommend the best debt solutions.
1 NerdWallet “What Happens to Your Debts After You Die” https://www.nerdwallet.com/blog/finance/debts-after-death-life-insurance/
2 MarketWatch “What happens to your debt when you die?” https://www.marketwatch.com/story/what-happens-to-your-debt-when-you-die-2017-03-21
3 The Balance “Here Is What Happens to Credit Card Debt After You Die ” https://www.thebalance.com/credit-card-debt-and-death-4104435
4 Forbes “What Happens To Your Debt After You Die?” https://www.forbes.com/sites/nextavenue/2015/01/21/what-happens-to-your-debt-after-you-die/#52cacc251153