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22 Aug 2012

Debt Doesn't Transfer to Loved Ones in Death, But Family May Still Suffer

Bereaved family members have enough to contend with when someone passes away without having to shoulder the burden of left-over debts.

You should know that you aren't responsible for debts that weren't in your name or that you did not co-sign for. That doesn't mean widows and widowers especially won't suffer a financial blow.


Here are some things you need to know:

The credit card companies and other creditors have the right to collect their payments from the deceased person's estate. If it's a secured debt, such as a vehicle payment, the vehicle may be repossessed and resold, with the remaining balance, if there is any, billed to the estate.

However, if there is not enough to cover the debt from the estate, creditors are generally out of luck, and must eat that cost.

If it's unsecured debt, such as a student loan, creditors can still collect the remaining balance from the estate.

Of course, this may affect any beneficiaries of the estate as the amount they can collect will dwindle based on the debts owed. However, beneficiaries won't be held responsible for the remaining balances on bills if the estate won't cover it.

However, there are some exceptions. If your spouse passes away and you had multiple joint accounts, joint debts or had co-signed for some of those debts, you can still be held responsible for the entire amount. This is often a harsh reality when spouses die, particularly because your income has effectively been halved (or more) by your loss, but your expenses haven't decreased.

You may be able to offset some of that cost through any life insurance policies you may collect, but that may not cover everything.

This is why many widows and widowers end up filling for Chapter 7 bankruptcy in the wake of a death, particularly if the deceased was the primary wage-earner for the family. Adjustments must be made in your monthly costs in order for you to get by. Sometimes, the only way to get rid of that debt is to have it erased in a bankruptcy.

Stephen H. Swift

Managing Attorney
Law Office of Stephen H. Swift, P.C.

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