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When I Die, Do My Debts Die Too?

When I Die, Do My Debts Die Too?
May 1, 2014 weberlaw

If you have debt, you are not alone.  In today’s economy, most people have at least some debt. Being in debt can be overwhelming, and you may wonder whether you will ever be able to pay off everything that you owe.  People with large student loan balances or big mortgages may even feel like they may not be able to pay off those hefty sums within their lifetimes. That is why understanding what happens to your debt when you pass away is important not only for you, but for your family as well.

As a general rule, family members, including spouses, are under no obligation to pay for the debts of a relative who has died. When a person incurs debt on their own, they make a promise to pay back the amount that they borrowed, plus any interest. This promise is not binding on anyone but themselves. An exception to this general rule is the joint debtor situation. If you have a joint credit card account, or you are a co-signer on a loan, then you are responsible for paying the remaining balance if the other debtor passes away. The reason for this is that each joint debtor is responsible for paying the full amount of the debt if the other debtor fails to pay it for any reason.

If the knowledge that you are not responsible for anyone else’s debts unless you are a joint debtor is news to you, it may be news to others in your family as well. There are many widely held misconceptions regarding debt, and they are not often challenged in a way that would promote public awareness about the truth of the matter. Since not everyone knows about this important concept, it is important that you let your family know that they are not responsible for paying your debts in the event that you pass away.

The information that you share with your family members regarding your debts could be very useful to them after your passing, due to a disturbing trend in the collections industry. Credit card companies and other types of creditors have gotten into the habit of calling the relatives of deceased debtors to try to get them to pay for the debts of their family members. If your family understands that they are not obligated to pay your debts, they will be able to stand up for themselves by telling any creditors who call them after you pass away to contact the executor of your estate.

As for what really happens to your debts when you die, they do not simply cease to exist. Upon your passing, the matter of paying your debts becomes the responsibility of your estate. As part of carrying out his or her duties in administering your estate, your executor will collect all of your assets. After the assets have been collected and their value has been assessed, your executor will use the assets to pay any valid claims of creditors before he or she distributes the remainder of the estate to your beneficiaries. Since the amount of debt that you owe at the time of your death will reduce the value of the estate that passes to your heirs, your heirs do “pay” for your debts, but only in a figurative manner.

Addressing your debts during your lifetime is just one element of a comprehensive estate plan. Drafting a will and choosing an executor are other important steps that you can take to ensure that your family is provided for when you pass away. To learn more about wills and estate planning, call the Wichita law office of J. Joseph Weber, P.A. at (316) 265-7802, to arrange an initial consultation. You may also contact us via our law firm website.