Once you’re gone you don’t just leave behind your loved ones and legacy but your debts also. Your debts are paid out of your estate (property and the money you leave behind) and don’t get passed on to your surviving family members. It is the estate legal responsibility to pay them off. Whereas, if there’s any money left, it passes on to your heirs. But if there isn’t sufficient money in the estate to cover all your debts, then the debt dies as well and the creditors typically write off the remaining balance.
The surviving family members aren’t liable for the unpaid amount of the deceased and will only be held liable if they had a joint loan or agreement or provided a loan guarantee. The repayment rules can get confusing, though, so here are certain things you need to know:
SETTLING THE ESTATE:
A will or testament typically names an executor, who has the legal obligation for settling the financial matters of the deceased. In case if there’s no will, the state authorizes who should handle it. According to Greg McBride of Bankrate.com, “That authorized person follows a pecking order who will get paid first.” Secured debts, like auto loans, mortgage, come first, however, medical bills, credit cards and other unsecured debts follow.
The most confusing question “After I die, will there be any responsibility of my surviving spouse for a home mortgage?’’ Banks expect to take any legal action to get paid for a mortgage, but some protections do exist for deceased family members or others residing in the home, said Chas Rampenthal, general counsel at Legal Zoom.
1982 Federal law prohibits banks from automatically foreclosing when a death news of homeowner confirms and always, ask for options. If your spouse decides to take over the mortgage, he or she will need to prove the financial capability to keep up with the payments.
Unpaid automobiles have a different scenario and do not enjoy the same protection. According to Rampenthal, payment rules vary state by state and lenders typically do not claim to take back a car unless someone continues to pay for it. It is better to consult a lawyer as to which assets are protected and which are not.
If you die and have credit card debt, it can get a bit tricky. Matt Schultz, senior financial analyst at Creditcards.com said, “If you’re the sole owner of credit card then the debt only belongs to you even in death.’’ It means your family members are not legally bound to pay off your liabilities and the ultimate responsibility rests with the estate. However, if there is a co-signer or you have a joint account the other party will be legally responsible for the balance. Merely authorized users won’t be liable for unpaid amount and interests, though, since they are not bound to carry the financial burden a co-signer does.
It’s better to find a lawyer who knows about all these rules and fuzziness in your state.
Unfortunately, after your death, debt collectors may decide to contact your spouse about the unpaid amount and it can be stressful. The surviving spouse may get threatening calls, saying the debt should be repaid within stipulated time and for moral reasons. The Federal Trade Commission restricts debt collectors in taking such actions and who they can call about the debt of the deceased. The FTC says family members typically aren’t obligated to clear the debt of their deceased relative from their own personal assets and so the debt collectors are prohibited from using abusive or unfair practices to try to recover a debt. But does it stop someone from making efforts?
You can report any problem to your FTC and state attorney general office you have with a debt collector. Many states have their own rules regarding debt collection and are different from the federal laws, so you can visit your attorney general office that can help you better to determine your rights.