Debt After Death: What Happens to What You Owe Once You’re Gone

I am sure everyday people don’t wake up thinking about how they are going to die that day. While most of us make it through those 24 hours, some people aren’t so lucky. Quite a few of those unlucky fellows leave a fair amount of debt behind. You see, while you’re living your life and making monthly payments to creditors, your kind of forget that you may not be around to live out those full repayment terms. That’s an understandable thing to think. We see tragedy on the news, but believe whole-heartedly that something like that could never happen to us. Well guess what, the victims of the explosions, hit and runs, hungry bears, falling pianos thought the exact same thing. So if you have a fair amount of debt, then listen up. We are going to talk about what happens to your debt when you die.


Debt After Death: Statistics

You would not believe how many people die with outstanding debt. Here’s some statistics for you:

  • 73% of Consumer Die with Outstanding Debt
  • The Average Balance is $61,554 (With Mortgage Debt)
  • With No Home Loans the Balance is $12,825

So, what exactly is making up all this debt? I’m glad you asked. Here’s some more statistics:

  • Credit Cards – 68%
  • Mortgages – 32%
  • Auto Loans – 25%
  • Personal Loans – 12%
  • Student Loans – 6%

If you are wondering if I am just making this up, I am most certainly am not. All this data is based upon 220 million Consumers from Experian’s FileOne Database.


Debt After Death: What Happens When You Die?

So, let’s say you unexpectedly get hit by a bus, and you happen to owe $61,000 in debt. How tragic. Your family mourns for you, but then eventually they all start taking about money, because you you’ve got about $500,000 stashed away. So, what happens to that $500,000? Do your creditors automatically lose out because your dead? Can you just divide that $500,000 to your family immediately? No.

If you die, and have enough assets to cover your debts, then creditors get paid first. Meaning Your beneficiaries get whatever is left. So, in this case, if you owe $61,000 in debt, then your beneficiaries get about $439,000. Now that’s a good scenario for you. Here’s one that isn’t so great.

Let’s say, you are strolling along the road and a piano happens to fall right on you. Wham. You’re gone, dead, in sort of a comedic way. You’ve got $100,000  in credit card debt. Why do you have that much credit card debt? Well, because you probably have a problem. But that’s beside the point. Let’s say you’ve got about $50,000 put away because you want to give your child the best possible education when the time comes. You’ve chose not to deal with the credit card debt, because it would take away from the little nest egg you have. You can’t afford to both pay the debts down and give your kid a chance, so you make a choice.

So, once you are gone what happens to that debt if you do not have enough money to cover it all? Well, if you do not have enough assets to cover the debt, the creditors sort of lose out. That $50,000 isn’t going to cover that $100,000 you owe. At the same time, your kid kind of loses out to. That money is gone. Poof.

Not to worry, I am sure there are plenty of Government benefits they can take advantage of when school rolls around. They’ll just be in debt for the rest of their lives.


Debt After Death: How Does My Death Effect My Family?

Fortunately for you there is a bright side. And no, I am not talking about that bright light you may see once you die. I am talking about some good news for your family.  When you die, your family members do not become the beneficiaries of your debt. Meaning, your debt doesn’t get put under their name.

It’s important to keep in mind that things can get complicated and messy. Here’s an example. If your only asset is the home you and your family lived in, then that will be used to pay your creditors. It doesn’t matter if that’s Credit Card Debt or The Mortgage itself. Meaning your family must take over the mortgage, or they may even need to sell the home to pay off your debts. So just because the debt might not transfer over to them, doesn’t mean they won’t have to deal with it somehow.

If you have Co-signed on anything, then most likely the debt will be falling on the shoulders of the other signer. Properties where spouses share ownership, also handle debts acquired during a marriage. That’s kind of a terrible burden to put on anyone’s shoulders, especially your spouse’s.


Debt After Death: How to Protect Your Family

Is there any way you can make sure your family doesn’t have to deal with your mess? The best advice would be to make sure you aren’t in any debt. You can also try sticking to a budget while you are alive.  You may also want to consider life insurance and meeting with an estate planning attorney to make sure everything’s covered in the event of your death. That’s if you can even afford to do any of this stuff. Just keep in mind, good or bad, everything you do will affect your family in some way.


Death After Debt: Conclusion

Not planning for the worst now can really screw over the ones you love if something terrible were to happen to you. If you don’t have a will in place, the expenses to have these matters determined by the courts is outrageous. The administrative costs get paid before creditors and beneficiaries. Meaning even less for your loved ones. You really must ask yourself a very important question. If I died today, would my family be alright? If yes, then great. If your answer is no, then something needs to change.

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