When a person dies, his or her debt does not always die, too. This can be a major concern for a person with a large amount of debt and who does not want his or her heirs to inherit this debt upon his or her death. The person may own few assets and not want those assets to be reached by creditors, preferring instead to leave them to deserving heirs.
Even when a debt is owned by a spouse, it does not mean that the surviving spouse will automatically be responsible for paying off the debt. A spouse would be responsible for the debt if the debt is jointly owned by both spouses, such as if the spouses jointly took out a mortgage loan. Additionally, if a person co-signs on a loan, the co-signer acts as a guarantor and would likely be required to pay off the debt if the person who took out the loan dies.
If the surviving spouse was only an authorized user on a credit card or a line of credit, the surviving spouse would not be held responsible for that debt upon the death of the spouse who was the primary account holder. There is a difference between being an authorized user and a joint owner on a debt. Therefore, the surviving spouse should ensure that he or she reads all the paperwork related to the debt in order to figure out whether he or she will be responsible for the debt after a spouse’s death.
In most cases, a person’s estate is responsible for paying off debts with any assets left within the estate before the assets can be transferred to heirs. The executor or administrator of the deceased’s estate usually has to locate and inventory all the debts owed by the deceased, and then apply all the assets remaining in the deceased’s estate to pay the debts. There are some situations in which the estate administrator may be able to use non-probate assets in order to pay the debts of the estate.
If a debt is secured by an asset, such as a house or a car, the creditor can repossess the asset after the death of the debtor in order to pay off the balance of the debt. Therefore, even if the family members of a deceased debtor do not have to be responsible for paying the debt, they may not have the benefit of inheriting the asset either. Some creditors may work with heirs who wish to pay off the balance of a loan in order keep the assets that would otherwise be repossessed.
If you are no longer able to pay your debts and have no options for additional income, it may be time to consider filing for bankruptcy. However, depending on the nature of your debt and what assets you own, there may be other ways to avoid filing for bankruptcy and still take care of your debts.
Contact Our Experienced Attorneys
If you have significant debt and are worried about how this debt will affect your family members after your death, you should contact an experienced estate planning attorney for more information. Call us to speak to our experienced estate planning attorneys, or our experienced bankruptcy attorneys at Resnick Law, P.C., in Bloomfield Hills and Detroit, Michigan for a consultation to discuss your specific situation.
(image courtesy of Benedicto de Jesus)