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What happens to your debts when you die?

When you plan an estate, you think about every detail from who inherits the house to who speaks for you in case of a medical emergency. However, we rarely think about who takes over our debt after we pass away.

Between mortgages, student loans and credit card debt, it is unclear who is responsible for any debts left behind. Many people worry about debt being passed on to family members, but it is typically more complicated.

Estates include everything

When you die, all your assets, from cash to property, make up your estate. The court will evaluate all your assets, including debt, to determine the overall value for the estate. Then, your executor pays any remaining debt; it may involve selling houses, memorabilia or stocks to cover the costs.

There are scenarios where the value of the estate does not cover the outstanding debts owed, and it may fall onto your family’s shoulders. However, it’s more common that it stays with you and you alone.

Before you co-sign on a loan

As mentioned before, your estate goes to the court through a process known as probate. Probate is the legal procedure for distributing property and settling debt after your death. During that time, executors will handle paying off any creditors.

But that changes if a relative or family friend co-signed a loan.

If your spouse co-signed a car loan, student loan or credit card, it is their legal responsibility for repaying the debt. Unfortunately, debt collectors may pursue your co-signers for your unpaid debts through phone calls and other means.

It’s important to recognize that co-signing a loan is the only time where a family member may be legally responsible for a debt. For example, if your wife is getting calls about a car loan that she did not co-sign, she is not obligated to repay the loan. No matter what the collector argues.

Protections from debt

In most cases, accounts relating to retirement, insurance and pension plans will not go through probate, which means they are not available for repayment.

In Pennsylvania, only assets in the deceased person’s name go through probate. Everything else can be transferred to a new owner without court approval. The most common examples of non-probate property are joint bank accounts, life insurance policies and assets in a living trust.

Remember, estate planning is crucial for you and your family. If there are assets you do not want to be sold under any circumstances, address that in a will or communicate with an executor about your wishes.

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Lebanon, PA 17042

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