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Debts & Death: Here’s What Really Happens to Your Loans When You Die Before Paying Them Off

A loved one’s death is always a difficult thing to go through for those left behind. But this ordeal is even worsened when a grieving family is left saddled with their deceased member’s unpaid debts. Unfortunately, this scenario may not be too uncommon.

Inheriting Debts

Family members are only responsible to pay their deceased loved one’s debts if they co-signed on it

A reported 73% of adults left behind outstanding debt at the time of their death. On average, the debt amounted to as much as $61,554 when mortgage debt is included. However, estate planning attorney Philip J. Ruce says that relatives shouldn’t be too worried about inheriting the dead’s debts though there are still some cases when that happens.

Since the person who died may have also left behind some assets, these could be used to pay off debt. The rest of the money, if there are any left, will be available to be inherited by surviving family members.

Some debt may be passed on though if the deceased co-signed it with another person. In cases like this, the co-borrower is on the hook to pay for it.

Dealing With Credit Card Debt

To avoid potential problems, family members are recommended to inform credit card companies of the death

Credit card debt can be dealt with in a variety of ways post-death. In the absence of an estate, a co-cardholder, or co-signer, the debt dies with the person. But in cases when there is a co-cardholder, they are left to pay for the balance left behind whether or not they were the ones to make the purchases on the card.

Meanwhile, other family members are advised against using a deceased person’s credit card as this counts as fraud. This is also true for authorized users, who knowingly continue using the card though they’re aware the resulting debt won’t be paid.

Handling A Deceased Person’s Mortgage

The estate can use other portions of the deceased’s assets to pay for the house loan before the home is inherited by a beneficiary identified in the will

When a person dies with outstanding mortgage payments, the responsibility to continue on making the payments fall on the co-borrower or co-signer. They could also choose to refinance the loan to avoid being foreclosed on in case they can’t afford the premium alone. The house and its mortgage then go to a beneficiary named in the deceased person’s will in case there are no co-borrowers or co-signers.

Private vs Federal Student Loan Debt

Federal student loan debts are usually discharged upon the death of the borrower even if they had somebody else co-sign on it. However, surviving family members still need to submit proof of death for the loan to be waived.

Meanwhile, a student loan debt from a private lender would still need to be paid. In community property states, the deceased’s spouse would end up having to pay off the outstanding debts if they were gotten during the marriage.

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