Today, one of the most believed misconceptions out there is that different debts like credit card debts, student loans, personal loans, etc. are canceled when debtor dies.

Thinking that your debts are off if the worst happens to you can prove to be devastating for your family because the financial situation you leave them in can have a critical impact on their lives.

This is due to the fact that creditors/lenders (the ones you owe money to) reserve the right to file a claim against your assets for any debt that you owe at the time of your death.

Someone who has zero assets (property or money) no dependents will be safe from the lenders as there will be nothing to take from. On the other hand, for someone who owns a property, it could possibly mean that their loved ones can lose the property to the creditors.

To make this more saddening for your family, any debts that are held jointly will mean that the other individual is now legally responsible to pay all of the outstanding debt. This consists of the largest debt that you will most likely ever counter in your life – your mortgage.

Let’s see if we can make this more clear for you with the help of an example: Mr. A earns $90,000 annually. His wife Mrs. A, who is a housewife has no earnings, and they have two young children.

The property was bought on a joint mortgage of $200,000 and it is worth $350,000. (Even if Mrs. A have no income of her own, she can still legally be party to a mortgage because her husband’s earnings cover it).

Unpredictably, Mr. A’s health goes down and he passes away. In this situation, Mrs. A has to deal with the dual misery of losing her life companion and now become the one who needs to pay off a mortgage that she no longer has the resources for.

So after losing her husband, Mrs. A now faces a situation where she runs the risk of being homeless because they are unable to cover the outstanding debt.

At this point, it must be recognized that debt is not something that can be passed onto your next of kin. The only way a person would be loaded with your debts on your death is if they jointly held the debt with you as stated in the above example.

This means that the debts stay. In reality, it can imply that your partner has a long waiting period before he/she can actually get control over your assets.

In case of your death, your legal advisor or attorney of your property will calculate the value of your assets, and if the total is more than $5000, then a process called probate must be adhered to.

The probate office will then specify the terms for how the assets will be distributed and it is vital for the executor to get a grant from the office before they can conduct the search bank or savings accounts.

Money can be withdrawn from the estate by the executor to fulfill the funeral costs. After which all the money must be used to clear any secured or unsecured debts before handing over the remaining money to the deceased’s next of kin or to the one who has been set out in the will.

For example, if you think that having $50,000 in your bank account will offer your family a chance to lead a good life after you, and all your debts plus the mortgage are $40,000, then all they will be getting is only $10,000.

Hope this post has assisted you to get closer to the reality of debt after death. So, make sure to abide by your financial plans for the betterment of your family.

This entry was posted on Monday, August 13th, 2018 at 5:02 pm and is filed under Debt, Mortgage. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.