What Do You Need To Know About Debt After Death?


Posted on: 09 June 2021 by Jacqui Coombe

For people who are grieving, the emotional toll can be worse when having to deal with financial stress.

Losing a loved one is never easy, especially when it’s your parent. For people who are grieving, the emotional toll can be worse when having to deal with financial stress as well. You may be struggling to finance a funeral or are faced with the prospect of selling your home and possessions.
But something else that can make dealing with a parent’s death even more difficult is dealing with their debt. If your parent has passed away, your initial worry might be - am I now responsible for my parent’s debt? Read on to find out how to manage your loved one’s finances after their passing, and what options you have when it comes to the debt of a deceased parent.
The facts on inheriting debt
The good news for most is that you typically do not have to deal with your parent’s debt once they’ve passed. However, while you’re not responsible for their debt when they die, it may affect how much you inherit from them. Their debt will typically be paid out via their estate (through the sale of their home, vehicle, or other possessions allocated toward their debt) and the remainder will be written off by the credit companies. If you are faced with pushy debt collectors, you should consult an attorney to deal with them and help clear up any financial mess left behind.
Another important thing to keep in mind is that you won’t be responsible for your parent’s debt as long as you did not cosign the loan with them. If you cosigned a loan for a house, car, or other loan types, then you will be made responsible to repay the loan even when your parents passed. Similarly, if you are a joint account holder on any credit cards, then you will be liable for paying off any amounts due.
What to do with your deceased parents’ debts?
The first thing you should do following the event of your parent’s passing is to notify their creditors. This will close their accounts and inform the creditors that any debt due will be handled in probate. If there is no will left, the state will look to the estate or any assets that can pay the debt off. All of this will be handled in probate court and may take several weeks to months.
Settling debt in court
If your parent/s did not have a will, and/or if they were involved in wrongful death, you will likely have to go to court to have everything settled. During this process, you can meet with your parent’s creditors and provide them with a copy of your parent’s death certificate.
This should stop any pushy debt collectors and possible foreclosure on the home until the estate is settled and the debt has been paid off. You should also alert creditors that you were not a co-signer and therefore cannot inherit your parent’s debt. If your parents did have a will and listed an executor, then it will typically be this person’s responsibility.
Can life insurance be used to pay off debt?
If your parent/s had life insurance and you are the designated beneficiary, you won’t need to use that money to pay off their debt. Since it is your inheritance, it is your money and cannot be used to settle the estate.
However, if there is no designated beneficiary on the life insurance policy, this money does become part of the estate and may be used to settle the debts. In this instance, it is important that your parents name beneficiaries on their life insurance policies to avoid this.
On the same note, taking out funeral insurance prior to their passing can provide peace of mind, helping to pay for funeral expenses and protect families from financial hardship. Discussing end-of-life plans in advance is one of the best ways families can prepare themselves for situations involving debt and financial management after death.
Final thoughts
One of the best things to do in the event of your parent’s passing is to consult a lawyer. This is especially true if your parents had any known debt left to pay off. A lawyer can help you through the process and provide you with guidance to avoid running into any financial or legal pitfalls.
A lawyer can also help you with the often stressful task of contacting creditors and closing accounts. Remember, in general, you do not have to deal with the debt left over from your parents unless you were a co-signer. If you are being bothered by debt collectors, avoid making any decisions until you contact a lawyer.
Finally, families are encouraged to discuss the end-of-life plans and make pre-arrangements prior to their passing. Having this discussion earlier, it will save a lot of confusion and stress when a difficult time does arrive. 

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