What Happens to Your Debt After You Die?
Does it simply go away? Is it passed on to your loved ones? Is it recovered from your estate? These are questions we’ve been asked as estate planning attorneys who deal with wills. The answer to this question depends on several factors, including the type of debt and the state where you reside. In most cases, your loved ones will not be responsible for your unpaid bills. Creditors are generally paid from the assets in your probate estate or a revocable living trust.
If the estate doesn’t have enough assets to cover all your debts, creditors might receive only a portion of what they are owed. However, there are some exceptions to this, including:
- A cosigner on a loan
- A spouse in a community property state
- A spouse in a state where they’re required to pay medical expenses and other debts of the deceased
Laws regarding medical bills can be complex and tend to vary by state, so it’s important to work with an experienced estate and trusts lawyer to ensure your affairs are properly handled. Surviving spouses and adult children may be contacted by debt collectors seeking payment for the decedent’s medical bills. Unless the survivor agreed to pay or is required to pay by state law, they generally aren’t liable for the debt.
Not all debts disappear upon death
While some debts will be discharged upon death, others don’t simply vanish. For example, most student loans are forgiven once the borrower dies, provided the loan servicer is notified. However, private student loans may not be forgiven. Some private lenders offer discharges upon death, but that isn’t always the case. In such instances, a cosigner or the estate may still be held responsible for repaying the outstanding balance.
When settling a decedent’s debts, it’s important to understand the difference between secured and unsecured debt:
- Secured debt – Secured debt is backed by collateral. Car loans and mortgages are examples of secured debt. If there aren’t enough assets in the estate to pay off the debt, the lender can take possession of the collateral. In some cases, a surviving spouse has legal protections that prevent immediate foreclosure on the property if they can’t pay the mortgage in full. In other words, the debt doesn’t simply disappear because you died.
- Unsecured debt – Unsecured debt is debt that is not backed by collateral. It includes credit card debt and personal loans. Unsecured creditors have a lower priority in probate. If the estate doesn’t have enough money or assets to pay off the unsecured creditors, they may not receive full (or any) payment.
Funeral costs, unpaid taxes, or probate expenses take precedence over certain creditor claims against your estate. Executors are responsible for ensuring all debts are paid in the correct order in accordance with state law. Failure to do so could make the executor individually liable for unpaid debts.
Talk to a Virginia Beach Trusts and Estates Attorney Today
The Law Office of Angela N. Manz represents the interests of individuals who are attempting to establish an estate plan. Call our Virginia Beach estate planning lawyers today to schedule an appointment, and we can begin discussing your next moves right away.
