What Happens To Your Debt After Death?

Whenever a person passes away, many people often believe that the debts that person may have had during his life are forgotten and cleared away.

Unfortunately, debts do not just vanish just because you passed on because your moneylender will definitely be after you. Fortunately, there is a way to get it sorted out if you have planned ahead.

Make a Financial Plan

Any debt that you may have left after you passed on would affect the properties and assets or the estate you plan to bequeath to your family because it will be them who will need to shoulder the debts and pay it off.

Before your estate can be distributed to your family, an executor would take charge of ensuring your will and the estate is properly distributed. The executor can take care of your debts for your family, writing off the checks to pay your remaining personal loan balance to your moneylender or sell some of your assets to cover the money.

However, what if you do not have enough assets to cover your personal loan balances and other outstanding bills? Can your family be protected from creditors? Could the creditors and banks hound your family for your unresolved debt? What can be done to prevent this from happening?

Every moneylender or creditor varies on how they will collect your debts, especially when you pass on. Ideally, before you take in a personal loan or any other form of credit, you should ask them about their policy on collecting debts if something happens to you so you can prepare ahead. Some of them may forgo the debt if you have passed on, but others would not depending on the loan you have taken out.

A good way to protect your family from your creditors and have a part of your properties allotted for debt payments is by making a registered will. Without one, your family will be at risk to creditors looking for payments. Inform your family about financial plans, especially your spouse or your parents if you are single. If not, ask your estate executor to handle everything on your stead.

For Credit Card Debts You Left After Death

If you have remaining credit card balances in your credit card once you passed on, your creditor would see it as a loss in their part. If your estate cannot pay for it, they will accept it is a lost credit. Credit card uses can be considered an unsecured loan so if something did happen to you and you cannot pay it somehow, it is a loss for the credit card company.

If your credit card is a joint credit card, your joint user – it may be your spouse, your parent, or child – will be the one to pay it off. When it is paid, the credit card details must be updated to ensure that no questionable activities will be done on the said account.

If your credit card has supplementary card users, they will not be asked to pay your credit card. They will only pay for the balances they incurred in their supplementary cards.

For Home and Car Loans Left After Debt

Mortgage loans like home and car loans are secured loans, so, if you have unpaid balances once you died, they can still come after your estate.

If you took the mortgage with a co-signee – maybe your spouse or your parent, the remaining balance can be paid by your co-signer and not have to go legal options to get it sorted out. If you took the mortgage on your own, your executor must be the one to handle your mortgage payments. If your estate does not have enough to cover your mortgage dues but you had the property in question bequeathed to your family, they can take care of the remaining payments.

For car loans, your executor can handle the remaining payments and get the money from your estate. Similar to the rules when it comes to home loans if you do not have enough on your estate, the one who gets your car after your death will be the one to pay your debt. Repossession will be done if no one would like to take responsibility for the car loan’s payment.

Set Up a Life Insurance Policy

If you have quite a lot of debts, you should set up a financial plan that would not just settle your debts but also protect your family from any fall outs caused by your debts. In this way, should anything happen to you, your family will be financially secure.

A good way to do this is by taking an insurance coverage. The usual payouts for life insurance programs are non-taxable so your family will not have to worry about deductions on the money they will get once you pass on.

Credit card companies actually have life insurance policies connected to their cards to provide some security for their users. However, it is recommended you get a regular life insurance instead of the ones offered by credit card companies. The reason is that the interest rate that will be offered to you by the credit card company relies heavily on the card’s outstanding balance and it may be too high for you to cover.

Check online or speak to an insurance agent to discuss the best insurance policy that works for your financial needs. Some life insurances come with small premiums that can be paid monthly so you do not need to worry if you have a small salary.

Conclusion

Debt is something we should not prolong as much as possible because if something happens to us, our debts will be transferred to the people we will leave behind. As early as now, we should plan ahead to ensure that even if we end up leaving debts once we pass on, our families will not be the ones to suffer for them. To burden them, it could leave them is so great that they may resent you for it even if you have passed on. So, be prepared for anything and start checking options today.

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