29 Dec Debt Does Not Die When You Do, Part Two
Surprise, you’re dead. Distinct from ‘zombie debt’ which should be dead, but refuses to die, your debt does not automatically die when you do. Your family or heirs could be forced to pay the bills that you didn’t (or couldn’t) pay before you moved on to another plane of existence. You might want to read Part One of this series.
So the widow said to me, “Don’t you just write a letter to the credit card companies and make them stop sending bills?” It’s not always that easy. If you have a debt that is only in your name and you die without any assets, then maybe those debts would die too. But that is a loaded statement. Let’s break it down.
Is your name the only name on the debt? Co-makers on an account are also equally liable on debts. So if anyone has co-signed a loan or has a credit card with you, they will be required to pay that debt after you go. Guarantors of accounts are only required to pay if the primary borrower does not, but you’re dead, so the guarantor will have to pay. So if your name is the only name on the account, those around you might not have to pay, but read on.
Even if your name is the only name on the account, can others be forced to pay your debts after you pass? In Connecticut, there is a specific statute that deals with husbands and wives making them responsible for each other’s bills. If the debt involves a matter of shelter, food, health or clothing, a spouse can be held responsible for the bill even though they did not sign anything or agree to pay it in any way. OTher states may have similar laws.
Do you own anything in your name alone that cna be sold to pay your bills? That is the function of most Probate Courts. So even though you might want your sister to get that prized oval mirror, it might have to be sold to pay your bills before your sister can say, “Mirror, mirror on the wall…” If the asset is owned jointly, the property may or may not be available to be sold to pay the bills. [A discussion of jointly owned property is beyond the scope of this article. If you need to know more, it is best to consult an attorney in your area because property law does vary greatly from state to state.] Consider also that if you have a business, those assets may or may not be available to pay your bills when you are gone, but that assets may be very valuable to your estate.
Is there any form of insurance available to pay the bill? While credit life insurance is generally a bad deal, it can be handy if you have it and there is no other form of insurance available. Credit life insurance will pay the currently outstanding balance of the debt, but not a penny more. [See “Credit Life Insurance – A Bad Deal?“] An advantage of regular life insurance is that the beneficiary of that insurance policy most likely will not have to pay your bills to gain access to the money.
So if an account is jointly held or guaranteed or there is property that is solely owned, the debt will live and generally must be paid before family members will be able to go on with their lives. While we’re at it, don’t forget taxes. The government’s cut could make the difference between staying in the family home or selling it to pay bills. And as always, see a lawyer if there is any question in your jurisdiction.