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What Happens to my Debt When I Die?

Debts are such an ingrained part of our daily lives that we’ve learned to accept them without thinking about it too much. We pay our credit card bills and write a check for the car payment, but rarely do we spend much time thinking about how those accounts would get paid if we suddenly died. The debts left behind by a deceased person involve complicated legal procedures, so it’s understandable that surviving family members have myriad questions following the loss of a loved one.

Are family members responsible for the deceased’s debts?

The simple answer is not usually, while the more complicated answer is that all debts are different. Lines of credit such as a credit card or a car loan are generally an agreement between a financial institution and a sole individual. That individual was the person who agreed to repay their debt, so this obligation is generally not transferred in the event of the debtor’s death. Federal student loans are also forgiven if the debtor dies before they can pay back the full term of the loan. A notable exception are loans that have been co-signed. If one of the co-signers is still alive, the creditors are allowed to seek payment from them in the event of the other party’s death.

How do the creditors receive payment?

We all know that banks and other lenders don’t like to let their interest and principal payments go, so it’s natural to wonder how they are compensated for the money they are owed. This is typically done through the probate process, which is how a deceased person’s assets are transferred following their death. If eligible creditors are owed, these debts will be paid off by a portion of the estate before other assets are passed to those specified in the will.

What happens if a family member owes more than their assets upon death?

In some cases, the deceased has remaining debts even after the entire estate has been liquidated in order to account for the debts. In the event that this happens, the probate officer will determine which creditors are first in line for repayment. After all funds have been exhausted, the estate becomes insolvent and there is nothing left for creditors to collect.

What should I do if I’m concerned about a deceased family member’s debts?

It’s clear that there are many different rules government debt of the deceased, and there are exceptions to every rule. Schedule a consultation with an attorney who has extensive experience in debt and credit issues. The experienced professionals at Morgan & Morgan will provide you with a free consultation to determine which of your family member’s debts require attention.

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