What Happens To Your Debts If You Die?

What Happens To Your Debts If You Die?

Kim Pinnelli

by Kim Pinnelli
Senior Contributing Writer

January 20, 2020
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What Happens To Your Debts If You Die?

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Some debts die with you, others live on until they are paid in full, depending on the type of debt you carry.

Many people wonder do debts die with you? Unfortunately, the answer is ‘no’ in most cases. It often lives on, especially if you had a co-signer or if you die with an estate. Typically, creditors have a stake in your estate before your heirs do. In other words, they take the money to pay off the debt from the proceeds of the estate.

The executor of your estate is in charge of paying the debts. They can pay them off by using money in your accounts or by selling some of your assets. Depending on the amount of the debt, your executor may need to sell your cars, jewelry, stocks, or even your home to settle the debts.

How it Works

Creditors typically put a claim on your estate upon your passing. They want to be paid and since most estates pass through probate (court), the creditors have a good chance at getting payment. However, since most probate cases take months or even years, some creditors may settle for less than the full amount of the payment due. If your executor can settle the account in cash immediately, creditors may be willing to do so rather than waiting and wondering if they’ll ever get paid.

What Loans can be Canceled?

The only debt that dies with you is student loan debt and only federal student loan debt. If you die, these loans get discharged immediately. This means your estate doesn’t have to worry about paying them.

However, if you have private student loans, it’s a different story. Like most other consumer debts, the lender will try to stake a claim on the estate, getting the executor to pay the debt. If you had a co-signer on your student loan, your co-signer is then on the hook for the full amount. Even if there isn’t a co-signer, the estate should pay the loan off in full. There are a few private lenders that will discharge even private loan debt, but they are few and far between.

What Debts Can’t be Canceled?

Most other debts that you can carry don’t die with you. This includes credit cards, car payments, and mortgages. Any joint holders or co-signers on any of the debts would then become responsible for the debt. If there isn’t a joint holder, the estate should pay out what they can to pay off the debts. In the case of unsecured debt, like credit cards or unsecured personal loans, there really isn’t anything for the creditor to come after since there is no collateral tied to the loan.

When it comes to a mortgage or car loan, however, the lender can foreclose on the home or repossess the car. Typically, your heirs will sell the assets and pay off the debt, though, rather than letting that happen.

When you wonder ‘do debts die with you,’ know that they don’t in most cases. You’ll be leaving your heirs with your financial liabilities. It’s a good idea to get your affairs in order if you can in order to lessen the financial burden on your loved ones.