Unfortunately, “‘til death do us part” doesn’t apply to your debt.
So you’re dead. Our condolences, but we’re also impressed that you’re somehow still able to access this site for some handy financial information! #financiallysavvy4life #andafterlife
But before you can lay your eternal soul to rest in the great beyond, you want to know what’s going to happen to all that debt you incurred when you were living it up (with a pulse). We can help with that, so read on, ghostly friend!
The bad news is that your assets (think home, car, etc.), if you still have outstanding debts on them (i.e. you’ve not finished paying them off), won’t become sweet parting gifts from the creditor to your loved ones. Someone will still need to pay up, or face losing it all on top of losing you.
That doesn’t mean your family is liable for your loans, but if the loans are unsecured it does mean the creditor can pursue your estate for the full payment, which is kind of the same thing. If you haven’t protected your assets, they can be used to pay the outstanding amount. It can also mean that if you cosigned a loan with someone, that person will then become fully responsible for the whole debt. Life insurance can prevent that problem (subtle, right?).
But let’s pretend you don’t have life insurance (eek!). Then, when you die all your assets and liabilities will be placed into an estate. Your assets include your house, your car, your furniture and the money in your bank account. Basically anything that has your name linked to it when you bought it. Your liabilities are all your debts. Then the following could happen:
Whoever is assigned to be the executor of your estate will sell your assets in order to cover your outstanding debt. Whatever is left over after all debts are paid will be distributed to your dependants.
If the executor finds that you do not have enough assets to cover your outstanding debt, the debt could be cancelled. The executor will not be allowed to pursue your dependants for the outstanding amount, unless they have cosigned the debts, or have signed surety. In this case, the debt sharer will inherit the full debt.
So, much like you, our ghostly friend, your debts will stick around to haunt your dependants even after you’ve died. They might not have to pay up, but unless you make plans to protect them, they could stand to lose a lot more.
Luckily, we can help with that. 😉💙