What Debts Are Forgiven at Death?
Once you die, what happens with your debt? It depends on the type of debt and if there are cosigners. Basically, all debts pass into the estate along with assets and other liabilities. Even if you have very little, you still have an estate in the eyes of the law.
Most people have wills (and if you don’t, you should). A will determines how assets are distributed. However, before anything is distributed, creditors are given a chance to claim part of the estate.
Talk to one of our debt specialists today to learn more about our debt settlement program.
What Are Different Types of Debt?
Secured debt, like mortgages, are passed along with the asset. If you are given a house in a will, you also get the mortgage. If you are unable to pay the mortgage, the bank can seize and sell the house.
Unsecured debt, like credit cards, must be paid as long as there are enough assets in the estate. If the debt is in the name of the deceased and no one else, the debt must be settled with the estate.
If there is a co-signer, the debt passes to the co-signer.
Generally, student loans die with the borrower. In some cases, the debt also dies if the parent(s) of the borrow die. You will have to provide proof of death to the school or lender, which is referred to as a death certificate, or proof of death certificate. A proof of death certificate has to be signed by a funeral director and can be presented to companies and organizations to inform them of the deceased.
IRS Taxes never die. In fact, they may even increase because you will still have to pay income tax on anything earned up to the date of death.
All these categories are very complex, particularly taxes.
You should have the guidance of an accountant or attorney.
Is Family Responsible for Deceased Debt?
This is another complex area. It depends on the type of debt and on the state where the deceased was a resident. If you live in a community property state, the laws can be extra confusing, so talk to an attorney.
If your deceased loved one has debts,
talk to an accountant or attorney before agreeing to pay anything.
Can Collections Agencies Call You?
Absolutely. They can and will. However, once the estate is probated, all debts owed by the estate are gone. They may call you while the will is in probate. Refer callers to the personal representative (executor) named by the court to handle business on behalf of the deceased.
Remember, generally, and unless, your attorney/accountant says otherwise, you DO NOT owe anything.
Do not make promises or payments to collectors. Do not give the collector personal information including bank account numbers or social security numbers. The collector is not necessarily a collector but could be a scam artist who reads obituaries.
If the callers violate the Fair Debt Collection Practices Act (FDCPA) or your state’s FDCPA, report them.
What if the Primary Credit Card Holder Dies?
It depends on the status of the secondary credit card holder. If the secondary was only an authorized user, the secondary is not liable for the debt, the estate is.
Hint: don’t use the card after the primary dies, or you may end up with the debt. Credit card use after death can also be considered fraud.
If the secondary is a co-signer, the secondary is responsible for the debt of the primary cardholder.
Are there Deceased Credit Card Collectors?
Yes and no. They are either regular debt collectors or scam artists. Again, talk to an attorney or an accountant before agreeing to pay anything to anyone.
What Happens with Credit Card Debt after Death?
If there is not enough money to cover debts, the creditors will be notified as to that fact. They should write off the debt as part of the cost of doing business.
If there is money, the credit card company must stop adding interest and fees while the will is being probated.
In most cases, debt is not inheritable.
Again, talk to an attorney BEFORE agreeing to pay any debts.
Stopping Credit Cards After Death
The personal representative should contact the credit card companies. They may require a death certificate. Some credit card companies can be unpleasant about canceling cards. Keep at them until you get the cards canceled.
Do everything in writing and keep records of who you talk to, what you send, and what response you get.
If you are not the personal representative, refer everyone to the personal representative. You have no legal standing in the deceased’s business.
We can’t stress enough that you should talk to an attorney and/or accountant before settling debts. Debt after death can be a complex issue and you will probably need expert guidance.
For more information, talk with one of our debt specialists today.