The outstanding balances of a person whether, on credit card loans or payday loans online, can have negative consequences not only for the persons owing the debt, but for their heirs and family as well. For instance, when your parent dies, you, as the child will be left to go through the financial rubble. The question now is whether debt is really inheritable or not. And if so, what are the things that you can do in order to deal with this effectively and avoid getting harassed by collectors.
In this article, you will learn everything about debt inheritance and the best measures to prepare such phenomenon.
Inheriting Debt – Is It Possible?
Fortunately, most of the debt cannot be inherited. This means that the debt itself passes away along with the person. But then, existing debts can wipe out possible inheritances, though there can be a few exceptions. After the death of a person, the executor may sell the deceased’ assets to settle all or most parts of the debts. With this, the payments are made through:
- Secured and unsecured debts
- Inheritances outlined in the will
In case of secured debts, the physical collateral serves as the assurance for the outstanding balance. Such debts are similar to car loans and mortgages. On the other hand, unsecured debts are not involved with physical collateral like credit card debts. It is only when all debts were deducted from estate will you get your inheritance. In the circumstance that the assets are inadequate to settle the debts, no one is legally responsible to pay for these debts.
Exceptions to the Rule
Although you are generally safe from inheriting your parents’, spouses or other people’s debt, there are some instances where you can be legally bound to pay the owed money and these are the following:
- In case you cosign, you will assume total responsibility of the debt when the other person dies such as in credit card debts and shared loans, so be cautious when cosigning.
- Holders of joint accounts whose credit history or income were utilized to take the loan will be held liable for settling the joint debts. When your partner in the joint account dies, it is you who will shoulder the debt.
- Widowers and widows who are residing in community state properties are legally bound for the debts of deceased spouses.
How to Handle the Debt?
There are many types of debts and here are the major kinds and some tips on how to handle each after a loved one passes away.
- Mortgages – There are various options when your parents leave you with mortgage loans. In case the estate has the money to pay the loan, they can do so and you can take the home to your possession. If you wish to, you can take charge of the property and the mortgage and proceed with the payments. Also, you can sell the house or refinance to settle the debt.
- Credit card debts, personal loans – Such debts like payday loans online, which are a great way to get money fast without taking on too much debt, should be repaid with the money acquired from the existing estate. If the assets are not enough, the money collected will be distributed among collectors and what remains shall be written off.
- Student loans – In case an individual such as a student passes away, students loans of federally insured students are actually forgiven. However, private loans should be repaid in the same manner like personal loans.
- Car loans – Your alternatives are almost similar with mortgages. You have the option to settle the loan from the estate funds, sell the car, refinance or transfer it to your name.
Upon knowing all these things about what happens to debts when someone passes away, the next step should be done. Well, it can be difficult to have your parents talk to you about debt and death or speak with your children about it. But then, it should be done.
In order to make sure that a strong estate plan will be set, it is always advisable to ask the help of a professional. With this, all legal matters regarding debt after death will be arranged the right way.