What do you do when a family member dies and leaves a ton of debt?
We’ve all heard the only two things guaranteed in life; Death and taxes. Well, maybe we can add Debt to that list; Debt, death and taxes or DDT for short? “DDT – is it really that bad?” You ask. Can be.
Did you know that most people who move to a better place leave their debts behind? It’s true. What is that old adage? “You can’t take it with you!” That makes sense, right? You cannot take your assets and therefore you cannot take your debts either. So what happens to all this debt left here on Earth? Well, that turns out to be a really interesting topic. So, let’s discuss this, shall we?
How often do people die with substantial debt?
Almost 75% of Americans who die today leave their debts behind. The average amount owed, not including home loans, is nearly $ 13,000. If we were to include mortgages, the debt would be approximately $ 61,500. Almost 70% of Americans who died in 2018 had credit card debt. 25% of the deceased owed auto loans. Turns out, 6% owed money on student loans, a number that is increasing each year according to Experian and credit.com.
Are you surprised by these statistics? You should not. The average person literally has no savings, a car loan, and around $ 10,000 in credit card debt. Most people don’t even own their smartphone, instead paying monthly in addition to the cell service bill. If this is you, you are in the majority and are still considered middle class. You shouldn’t be surprised when a loved one passes by and discovers that you were in the same boat you are on now.
Who is responsible for all this debt when someone dies?
Don’t worry, the heirs are usually not the ones who now owe the debt. The estate of the deceased person is now liable for the debt. However, this could affect your inheritance since creditors receive payment first. There are rules for liquidating an estate and rules that determine how much is owed for debts against that estate. Much of this depends on the status that the deceased claimed as their residence, the total value of the estate, and the types of debts that are still outstanding.
If a person dies owing more than his property, an heir can ‘refuse to accept’ his inheritance and therefore will not receive money, but will not be liable for any of the debts either. On the other hand, if someone dies and has more assets than liabilities, then perhaps some of those assets need to be sold to pay off the debt. In this case, the heirs will get the difference (minus the administrative costs to execute the estate and the taxes owed).
Needless to say, it makes sense to have a will and plan before you die. Of course, this is not always how things work, as no one really knows when or, in many cases, how they will die.
What happens if your spouse dies? Do you owe your debts?
Well, in the case of a surviving spouse, it becomes a completely different situation. Again, it matters where you live, for example a ‘community property’ state. In such cases, you could be liable for the debt even if it was only in your spouse’s name and “if” the debt was assumed during the marriage.
Often times, creditors will lean a little more on surviving family members to try to collect. Creditors can also hire a collection agency to try to collect the debt. It can be a problem when you are already in an emotional state, as they try to make you agree to pay the debt owed, even if you are not responsible.
If you feel pressured to pay a debt that you do not think you owe, you should seek the help of an attorney who knows the law and can help explain your rights. There are law firms that can help.