There are some common misconceptions about debt at the end of someone’s life. For instance, there are those who believe that debt is just eliminated when someone passes away, as if it no longer existed. There are others who believe that the children and other relatives of the deceased individual will have to pay their debts for them.
What you will find is that neither of these perspectives are true, despite being polar opposites. The truth lies somewhere in the middle, and it’s important to understand how that works.
An obligation for your estate
The best way to think about your outstanding debts, whether they are car loans or credit card bills, is that they are an obligation that you are leaving for your estate. This means that your estate administrator can use the money you have left behind to pay your debts on your behalf. They may also pay taxes and take care of many other financial steps, so this is a natural part of going through your estate and finalizing all of your affairs.
As far as your other heirs are concerned, unless they co-signed a loan with you or are otherwise officially connected to your debt, they’re not going to have to pay it just because they are related to you. The only way that they would lose money is if they expected to inherit the assets that you left behind, but then those financial assets had to be used to pay the debt first.
Moving forward
If you’re making an estate plan or administering an estate, you must know how debt works and exactly what legal steps you’ll have to take at this time.
