First, estate planning — now, we’re moving on to what happens to debt when you die. The question was asked by Ally from Tales of a Fourth Grade Nothing in the comments section, and I realized that I couldn’t give her an answer without doing some research. So here’s what I’ve learned.
It Depends on Who’s Listed on the Accounts
If you die and are the only person listed on your credit card accounts, the debt MAY die with you. Creditors can try to collect money from your estate — the executor can allocate funds to paying off your credit card debt. If the estate is insolvent, the creditors will have to write off the loss — no one else is responsible for payment, even though you may get collections agencies hounding you. If you’re receiving calls/getting letters from creditors or collections agencies for a debt you’re not responsible for, you should contact an attorney.
However, if another person (spouse, partner, son or daughter) is a joint account holder, they will be responsible for your debts upon your death. You may be gone, but your debt lives on!
The same goes for mortgages and car loans — whoever is listed will bear the full weight of the debt left when you die. If no one else is on the deed or mortgage, the property can be passed down through inheritance laws, but then that person will be responsible for any mortgages, taxes and/or liens on the property (or car, if it’s passed down).
Community Property States
Arizona, California, New Mexico, Nevada, Idaho, Washington, Texas, Wisconsin and Louisiana are all “community property states.” This means if you are married and your spouse dies, you are likely responsible for the debt — even if your name is not on the account/loan — if you both co-signed while married. Any debts accrued prior to your marriage are likely not your responsibility, but again, consult with an attorney to determine how the law works in your particular state. If you were not married, then not only are you not responsible for the debt, but you also hold almost no claim to any property.
“Common law states” recognize partnerships of certain lengths as having the same rights as married couples. But in these states, the surviving spouse or partner is not responsible for certain, solo debts only incurred by the spouse who passed away — for example, the deceased husband owned his own fishing boat that’s wasn’t for family use. But if we’re talking a mortgage or a family car, the surviving spouse can be held liable for the debt.
Proof of Death
It’s morbid, but sometimes, you have to send a copy of the deceased person’s death certificate to provide the debtor is no longer on this earth. Otherwise, the calls and letters from creditors may be incessant. After you provide proof of death, you should be left in peace, and the creditors will likely write off the debt as a loss.
The laws and regulations regarding what happens to debt when you die varies widely from state to state, and I’ve found it hard to offer a concise description of all the possibilities. If you find yourself confused about whether or not you are responsible for your family member or partner’s debts, I highly recommend you consult an attorney or a financial professional who can advise you of your options.
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