E110 What Happens to Your Debt When You Die [REPOST]

<p>You probably don’t want to burden your kids or family with your debt when you die. Here, we’ll cover the ins and outs of debt and death, including an overview of what happens to your debt when you die and how to handle an estate with debt.</p> <p>We’ll also cover when heirs do not inherit debt (with some exceptions), and why debt collectors keep calling heirs. Lastly, I’ll explain how your heirs can turn the table and actually <strong>increase</strong> their inheritance.</p> <h2><strong>When Heirs do NOT Inherit Debt</strong></h2> <p>Generally, debt dies with borrower, and the estate will pay, if it can. When someone dies, their assets and debts all get thrown into an entity called the “Estate.”</p> <p>If the Estate is positive, then the heirs will inherit the assets. For example: Your aunt died with a $100,000 house having a $30,000 mortgage, no cash, and another $30,000 in credit card debt. The executor will need to sell the house and pay off the bills, but now the heirs will inherit the $40,000 remainder.</p> <p>If the Estate is negative, then the heirs get nothing. However, the heirs DO NOT owe the difference. The creditors have to eat the loss, and usually cannot come after the heirs. For example, your Grandpa rented his home and pretty much spent what he had. He then died with $5,000 in his checking account, but also with $25,000 in credit card debt and medical bills. Now, Grandpa’s estate is $20,000 negative. Do his heirs have to reach into their pockets and settle the $20,000 difference? No. Credit card companies and hospital must eat that $20,000 loss.</p> <p>There are some exceptions, however:</p> <ol> <li>Co-signers and co-borrowers on mortgage will be held responsible because they were equally responsible when they took out the loan.</li> <li>Another example is when parents guaranteeing private student loans (you can avoid this with federal loans which don’t require co-signers).</li> <li>Some hospitals will nudge a spouse or family to co-sign medical bills (check with your attorney before signing).