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Who Acquires Your Debt When You Die?

When acquiring debt, you and or the joint account holder are responsible for ensuring that the debt is paid on time or in full when it is due. What happens to that debt when you or a relative passes away? There are a few options that are available when it comes to paying for the debt of a deceased loved one. Some individuals will be responsible for absorbing that debt, and for others, the creditors will be out of luck.

Who Acquires Your Debt When You Die?

When you die, your debt does not die with you. Creditors will still try to collect the debt, but they will have to go through your estate to do so.

Questions your loved ones may have are:

  • Can creditors collect a debt from life insurance payouts or retirement accounts?

  • Is there a limit to the amount of debt that can be collected from an estate?

  • How can individuals plan to minimize the impact of debt on their loved ones after they pass away?

  • What legal protections exist for heirs and beneficiaries to prevent them from being responsible for a deceased person's debt?

And many more. Here are a few answers to the questions I get the most often regarding who acquires your debt when you die.

Are you responsible for the debt when the debtor passes away?

The general answer is no. You are not responsible for someone else's debt if it is listed solely in their name. A lender cannot come after you to pay off the debt if no money is available in that person's estate. On the other hand, if that individual had bank accounts or other property in their name, the balance of the estate could be required to pay off the remaining debt. There could be other reasons you may be responsible for paying off the deceased's debt.

Reasons you may be responsible for paying off the deceased person's debt?

You co-signed the debt.

If you co-signed to be responsible for a debt with another individual and they pass away, you will be required to take over the debt payments for the remaining balance. Co-signing on a debt with another individual means that if, for any reason, the other party does not make a payment, you will be responsible for the debt. If you don't pay the debt, it could affect your credit rating, and creditors could come after you for defaulting on the debt.

You live in a community property state.

Community property states are states in which property or debt acquired by one spouse is also the other spouse's property. This means that if your spouse buys a Harley Davidson and you never drive it, pay for it, or wanted to purchase it, you are also the owner and responsible party for any debt incurred. There are nine community property states, so it's important to be on the same page with your spouse when purchasing property and incurring debt.

State law requires you to pay for your parent or spouse's debt.

Some states may require you to pay the debt of your parent or spouse. For example, if either of these individuals passed away and had remaining medical expenses, the hospital may require that you pay for the debt. Some debts cannot be discharged, and healthcare expenses are one of them. For the most part, some community property states are in the majority when requiring a spouse or child to take on the deceased's debt. In addition, if you signed something in the hospital stating that you would be responsible for medical costs incurred, you could be the responsible party after death.

You are the executor of the estate.

If you are the executor of the state and responsible for discharging the deceased person's debt, then you are legally responsible for settling their estate. As the executor, you will have access to all the individual's remaining funds, property, and debt. You should settle the estate appropriately if they have funds available to address outstanding debt. If you don't, you could be subject to court proceedings.

What happens if a debt collector calls?

If a debt collector calls, they are permitted to ask for some basic information regarding the payment of the debt and to find the contact person responsible for executing the estate. The debt collector can call and ask for a spouse's information or who the executor of the estate is. The executor is responsible for settling the debt if there are funds available. However, you have the right to ask the debt collector to stop calling you after the first instance. Debt collectors cannot harass or threaten you. They should be reported to the appropriate state organization and the Federal Trade Commission if they do.

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