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  • What happens to my debts after I die?
  • March 21, 2014
  • What happens to my debts after I die? By

    Imagine if you or another income-earning family member dies with one or multiple unpaid debts. Many personal debt agreements specify that a remaining balance becomes due upon death.

    Americans in credit debt

    These payments will not just disappear and will become the responsibility of any survivors to pay them off if there is a lack of proper planning. Luckily, most life insurance policies provide the immediate and necessary cash to cover any outstanding debts.

    Other types of debt will not necessarily be payable upon you or another family member’s death, according to Edward E. Graves, author of “McGill’s Life Insurance.” For example, if both you and your wife are liable for a debt and pass away, the right amount of life insurance gives any surviving family members the option to pay off the debt all at once or in its scheduled intervals.

    Who pays after death?

    • When you die, your estate is responsible for paying off your debt. Anything remaining after the debt is paid will go to the heirs specified in your will.

    • If a spouse, relative or family member co-signed on a joint account, they could find themselves liable for your credit card debt. This does not apply to someone who only has “credit card use” privileges.

    • If your assets do not cover the debt, credit card companies are forced to take a loss without expecting repayment from your children, friends or relatives.

    • Check the community property laws in your state. In some states, your spouse could be responsible for any debt following your death.

    • IRAs, 401(k)s, brokerage accounts, pension plans and insurance are not considered a part of your estate, and is therefore safe from creditors

    Still, in other states, homes can be transferred to the surviving spouse without being subject to creditors


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