Responsibility for Debt When a Loved One Passes
In a perfect world, when someone passes away, all of their debt would vanish and not have to be accounted for by anyone; however, this is not the case, and things become much more complicated if the deceased does not leave a will to designate their assets. For the more complicated path, no will means that the state must dictate how to proceed, and every state has a different set of rules and procedures. Moreover, rules in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin) are different from the rest.
When a loved one passes away, their estate, everything owned at the time of death, is used to pay their debts and is done through the executor of the estate. Assets, like a mortgage or a car loan, are settled by selling, repossession/foreclosure, or refinancing, done by a family member that inherits the property. Other debts, such as credit cards or student loans, are paid through the estate, eventually affecting the amount of the inheritance given to family members; however, if there are insufficient funds to pay these types of debts, the executor of the estate goes through the probate system to specify which debts are paid in what order. There is a chance that the latter types of debt may die with the person, but they may also not depending on the company.
Typically, family members are not responsible for these debts unless they co-signed for a loan, have a joint bank account, or are spouses in a community property state. Joint homeowners or someone that inherits the home of the deceased take on the remaining amount of the mortgage, though they are not responsible to pay it in full immediately after the death of a loved one per federal law. In the case of credit cards, the living cardholder is responsible for any and all balances, contrary to authorized users. Lastly, debt incurred when married, such as a student loan, in a community law state becomes the responsibility of the living spouse, though specific laws depend on the state.
To avoid problems and implications, it is important to try to have little to no debt; however, it is often difficult to do so. Clear records of debts should be kept for family members to refer to in the event of death, and legal assistance is available even before such an occurrence. Preparedness, in this case, is essential and highly beneficial.