What Happens to Debt After Death

This guest post is by Pablo Gibson.

Could you recall the Wall Street Journal story which had suggested that the pop king Michael Jackson had left behind an astronomical $500 million of debts after his sad demise? Well, such debt amount is way beyond our imagination but it raises an invariable question in our minds what will exactly happen to our debt loads after we die.

Following is a breakdown of what happens to different types of debt depending on who is on the account.

Co-signers or the joint account holders

If the deceased person had debt that was taken out with another person, it passes on to a co-signer or joint account owner who will remain responsible to take care of the future loan payment.

Authorized User

If you are the authorized user on the deceased’s account, you are not obligated to pay off the credit account. An authorized user is the one who has the permission from the original credit holder to use his or her credit account. Unlike a co-applicant or joint account holder, an authorized user has no legal obligation to pay off the credit account and as long as you remain a solo authorized user, you’re not directly liable for the credit balance. You do need to stop using the account, as it is effectively closed when the deceased passes on.

Single Signer

If the deceased was the only person on the account, the debt dies with them. However, the deceased’s assets must stand for the debt. For example if the deceased had $25,000 in savings and debts of $14,000 all debts must be paid in full with that money, after final expenses. The assets of the deceased will include their share of a home if one is owned by a spouse.

Who Gets Paid First

State laws usually determine which debt should be handled first and set the priority list. For example, funeral expenses, legal fees, and court fees are high priority debts therefore need to be mitigated first. Credit card balances are given lesser priority and must be handled only after you pay off the high priority debts.

Debts and loans that are secured against property such as mortgages and car loans usually remains the responsibility of those who inherit the property. When the property gets liquidated, the debt allied with that property is paid off.

Check with your state to confirm exactly how your state handles payment priority.

Exceptions

If you live in a community property state your situation will be different when your spouse dies. You need to check with an attorney in your state to determine what you are responsible for. Those states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Puerto Rico are all community property states. (Wiki Answers)

Final Thought

After a loved one dies it can be very difficult to think of the business side. If it is too much emotionally or too confusing, please find the help of an experienced probate attorney. Probate attorney’s are there to help you through the process and explain the law to you for your respective state. Don’t use this time to try and learn the law, focus on grieving instead.

Pablo Gibson is a financial writer associated with Oak View Law Group writes on various finance related topics like debt management, debt settlement and debt relief programs.