financing

Can I Pass Down My Debts to My Heirs? FAQ About Debts After Death

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So many people are burdened with debts, usually credit cards and mortgages. As they repay, they may occasionally wonder what will happen to their debts when they suffer an untimely demise. While that’s such a dark thought to have, it’s also pretty wise, because indeed, can your surviving family members inherit your loans?

Nobody wishes to leave their heirs with financial problems, but if you’re living with a mountain of debt on top of pandemic-induced health concerns, then that’ll likely be the case. But does that mean that your lenders will go after your surviving family members after your death?

Thankfully, your heirs won’t be responsible for loans that they have nothing to do with. But even so, you should enlist a competent lawyer who specialises in wills, so that you can outline as early as now what shall happen to your estate once you pass away. That’s because lenders don’t nullify the debts of a deceased debtor. Instead, they’ll use their estate to satisfy their obligations.

But what happens specifically to a mortgage, credit card debts, and a car loan? Below are the answers to the most frequently asked questions about debts after death:

1. Who will make your mortgage payments when you die?

The stakes can be higher in a housing loan because your family members living in the home may have an emotional attachment to it. Hence, it’s crucial to include arrangements for your mortgage payments in your will. That will prevent lenders from imposing penalties and foreclosing your home.

Your surviving spouse, executor, or anybody else can finish the payments while they settle the estate. But if you’ve left enough funds, then your automatic bills payment can keep doing its job. However, banks can freeze the accounts of a deceased person, so you may need to ask your heirs to set up new payment methods.

You may pass your mortgaged home to your heirs. The federal law mandates lenders to allow surviving family members to take over a mortgage without proof of their ability to repay. But your heirs aren’t required to keep the mortgage, either. They may refinance the loan or have the executor of your will pay it off with your assets. That way, your heirs can take the home without any more obligations.

The only condition that makes your heirs automatically liable for repaying the mortgage is when they’re a co-signer of the loan. Whether they live in the home or have an ownership interest in it, they will be required to repay the remaining balances.

2. Who will be liable for their unpaid credit card debt?

As with mortgage debt, the deceased’s estate will also be responsible for relieving their credit card debts. If their estate can cover the entire debt, anything leftover will be distributed to their heirs. But if nothing of the estate will be left behind, the remaining balance of the inheritance can be decreased.

Credit card providers will automatically cover a deceased borrower’s debt. If the heirs aren’t legally bound to the loan, then they won’t be liable to the remaining balance should the estate turn out insufficient to satisfy the credit card debts, unless they are a co-signer.

3. What about their car loans?

car from above

The same process applies to a deceased person’s car loan. Their estate will also be responsible for covering their remaining balances.

But credit insurance, which can be purchased along with the car loan, can allow surviving family members to keep the estate after the borrower’s death. It is the insurer instead who will be liable for repaying the car loan debt, though this depends on the terms of the agreement.

Without credit insurance, a co-signer will be responsible for the car loan repayment upon the borrower’s death, just as the case with a mortgage and credit card debt.

Other Important Things to Note:

Overall, the estate of a deceased person will be used to relieve any debt they’ve left behind. The co-signers will only be responsible for the remaining balances if the estate won’t be enough to cover them.

But even if heirs aren’t usually responsible for paying off their deceased spouse’s or parents’ debts, they may still undergo a tough time settling their estate. Hence, it is incredibly crucial to have a will. Estate planning simplifies a lot of processes that will transpire after death. It will prevent the state from taking over, sparing surviving family members from further distress.

Life insurance is another advantageous investment. It can pay off the loans left behind by the deceased, such as mortgages or healthcare bills.

Therefore, while you’re still healthy and able, make definite plans for your estate, and make funds available for your family. Having cash will keep their stress under control and reduce the amount of paperwork when you pass away. Estate planning and inheritance may be hard to talk about, but they will guarantee a smooth succession when the time of your passing comes.

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