Inheritance is an inescapable part of debt. Like it or not, the spouse or next of kin will need to settle the estate of the deceased. A big part of that is taking care of any lingering debts.
That’s right. Debt doesn’t go away when someone dies. The balances don’t zero out, and the accounts don’t automatically close out. Most outstanding balances must be paid or assumed by someone else. If you’re the person who will be responsible for the debt of the deceased, here’s what you need to know about different debts after death.
Mortgage Loans
What happens with mortgage debt depends on how the loan is structured and who took out the loan. If the deceased was married and the spouse is still living, then the spouse will likely assume the loan and continue making payments. If there was another co-signer on the loan they would be responsible for the balance. Whoever inherits the home can also work with the lender to assume the loan and continue making payments if needed.
If the estate has the funds to pay off the mortgage loan that’s what will happen if there isn’t a co-signer or co-borrower. The benefactor will then inherit the home free and clear. However, if the mortgage loan balance isn’t paid and monthly payments aren’t made the home will go into foreclosure. Some benefactors choose to sell the home in order to pay off the mortgage loan so that doesn’t happen.
Are you planning funeral services for a loved one that has a mortgage? Check out more in-depth information about what happens to mortgage loans after death.
Auto Loans
In November 2023 it was estimated that around 40% of people are paying off an auto loan at any given time. That means a lot of people have an outstanding auto loan when they die.
Auto loans are handled in a way that’s very similar to mortgage loan debt. First, any co-signer will be responsible for the outstanding balance on an auto loan as they are now the sole account holder. The spouse may also be responsible for the auto loan depending on the state. If there’s no co-signer or spouse, the estate pays off the balance. If the estate can’t, the vehicle will probably be repossessed and the auto loan will be closed.
What if you inherit a vehicle? If there’s a loan attached to the vehicle you’ll inherit it as well. However, if there’s a co-signer on the loan they will likely be the one responsible for making payments.
Student Loans
Many people don’t realize just how much student loan debt there is in the U.S. It’s estimated that 13% of Americans have federal student loan debt, but that’s just one segment. There are also private student loans that aren’t in that total. The total amount of student loan debt is greater than the total for credit card debt and auto loan debt combined.
A family may find that their loved one had a significant balance on a student loan. The type of loan it is makes a huge difference in what happens next. A federal student loan dissolves after you provide proof of the death. That means the loan is canceled and the balance doesn’t have to be paid. This applies to Parent PLUS loans if the parent on the loan dies.
What happens with a private student loan is a toss up. The lender could discharge the loan upon receiving proof of the death. In that scenario the loan is ended without the balance having to be paid off. But many lenders don’t offer death discharges and the estate is responsible for settling the loan.
Credit Card Debt
Credit card debt is one of the most common types of debt. On average, American households have over $8,400 in credit card debt. Based on Experian’s data, on an individual level the average credit card debt is $6,501.
If you’re tasked with managing someone’s estate, you’ll likely have to handle some credit card bills. There are actually federal and state laws regulating what happens with credit card balances after the account holder dies.
For starters, it’s up to the creditor to contact the estate within a certain amount of time and notify them of the debt. Once the debt is verified, whatever is in the estate will be used to pay the balance. If the estate doesn’t have enough to cover the total amount the creditor must write off the portion that isn’t paid as a loss.
However, there are several scenarios where a family member or spouse may have to assume the debt. Worried about posthumous credit card debt? Learn more about what happens to credit card debt after death.
Medical Debts
Since approximately 35% of people die in a medical facility in a given year, it’s safe to say a fair number of people have medical debt at death. Even with health insurance there could be a deductible and copay expenses that must be paid.
Medical debt is considered unsecured debt, meaning there’s no asset attached to it. In most states, unsecured medical debt must first be paid by the estate. If the estate doesn’t have enough cash to cover the bills, assets may need to be sold to pay the balance. If there simply isn’t enough to pay off the medical debt it’s a loss for the creditor because family members can’t be forced to pay the debt.
Business Debts
Hopefully, the deceased’s business is a Limited Liability Corporation (LLC). This helps protect business owners from personal liability for business debts. Posthumous debt payments will also depend on whether the person had sole ownership of the business or had a partnership.
When there’s a partner that takes over sole ownership of the business they will likely also take on the remaining debts. If that’s not the case, the estate may be responsible for all or a portion of the business debt.
You’ve already got a lot to figure out with settling the estate and paying off debts. Let Cremation.Green handle the funeral arrangements so that you have a helping hand through the process. We’ll take care of things like transport, getting the death certificate and getting the cremation permit so you can focus on family matters that need your personal attention.
If you’d like help arranging eco-friendly funeral services in the Austin area please contact us any time of day.
