Grappling with financial debt is a problem that too
many Americans deal with in life. Even posthumously. Over 73% of Americans die
while owing almost $62,000 in debts. That means almost three out of every four
people will die in debt. This is a serious problem because a lot of debt
doesn’t disappear after death. Many people may think otherwise, but even death
does not exempt you from paying back debts.
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Anyone who jointly owed debts with you in life and the
executors of your estate are responsible for paying back your debts. Your
estate is everything that you owned in life. A spouse, anyone who co-signed a
loan with you, co-owned a business or owned property and/or assets with you in
life can be on the hook for paying back your posthumous debts.
However, there is also a lot of posthumous debt that
is forgiven. Or just more legally difficult to collect after death. Before we
discuss what kinds of posthumous death is forgiven, let’s examine what kinds of
posthumous debts are not forgiven.
Unforgiven
Posthumous Debts
Any surviving relatives, beneficiaries or estate
executors can be on the hook for certain
debts after your death. Secured financial debts are never forgiven
after death. Such secured debts can include significant personal loans or
mortgages. Collateralized loan assets, properties or even a house can be seized
by a bank posthumously to satisfy debt obligations.
Even taxes are certain after death. In fact, tax payment
obligations may even become more significant after death. Depending on where
you live, estate tax laws may legally mandate the collection of taxes on all
inherited and newly generated incomes. The overall value of the posthumous
estate may also be subject to estate tax collection.
Anyone who co-signed for a personal loan with you is
also responsible for the entire debt in the event of your death. Your death
does not absolve any loan co-signer of their responsibility to pay back the
debt in full.
Student
Loan Debts
Generally, student loan debts are forgiven after
death. Technically, student loan debt must be repaid regardless the
circumstances. However, they are not aggressively pursued for collection after
death. Privately secured student loans can be collected after death however. Paperwork
verifying death should be sent to schools and lenders related to the student
loan.
Credit
Card Debts
Credit card debt is the sole responsibility of the
person who own such debt during life. Unless such debt was cosigned by another
individual, it cannot be transferred to surviving relatives, beneficiaries or
an estate. Posthumous credit card debt is never really forgiven however. It is
more that such debt is given up on in terms of collection. Credit card issuers
can issue collection letters or calls requesting payment from the estate.
However, the estate or surviving relatives have no legal mandate to pay back
such debts.
Insurance
Policies
Insurance policy payouts, like life insurance or
retirement insurance, are not part of the estate. Unless such policies were
legally earmarked for debt payments before death, they cannot be collected for
debts. As long as the beneficiaries are specifically named for payout payments,
such policies are safe from debt collection.
Estate
Insolvency
If the debts attributed to an estate vastly outweigh
an estate’s ability to pay them back, not much can be done to force debt
repayment. As long there are no secured debts involving mortgages or property,
there is not much debt collectors can do. In such cases, the expense required
to collect such debt may be more than the debt itself.
Final
Expense Insurance
One way to deal with unforgiven debts after death is
final expense insurance. Final expense insurance is a form of life insurance
that is used to pay for all of the costs associated with end-of-living medical
expenses and funeral expenses. No medical exam is required, and approval may be
immediate. Funeral
insurance companies are relatively affordable way of taking the
worry out of securing all end-of-life payments. Relatives can even apply for
final expense insurances on behalf of loved ones in most cases.
Consult
a Lawyer
Make sure that you enable legal provisions in your
living will to protect your loved ones and estate from posthumous debt. Consult
a lawyer as soon as possible since posthumous debt obligations can be a
complicated legal area. Being as legally prepared as possible for all
posthumous debt obligations will be worth it. It seems that the only thing more
certain that death and taxes is debt after death.
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