Debt after Death: What Happens when a Debtor Dies (or the World Ends)

Update 05/20/2011

Debt has a habit of sticking around after death - but what about when the world ends? With more than $16,000,000,000,000 (that's trillion) in consumer debt in the U.S. - plus another $14T in public debt - there's a lot of zombie debt that will be crawling the land even after we're all gone.

Christian broadcaster Harold Camping is certain that the world will end Saturday, May 21, 2011 (that's tomorrow), based on "infallible, absolute proof" that the Judgment Day, and his followers around the country are quitting their day jobs and preparing for the Rapture.

Now, to be fair, Camping believes that the world will end only for "true Christians," who will be whisked away to Heaven while the rest of us of forced to endure the apocalypse, which could take several months - and explain why all those good people's credit card bills are no longer being paid when the debt collectors start calling (and you know those people aren't going anywhere).

So run up those credit cards and spend like there's no tomorrow! And when we're all still here Sunday and the bills start coming in, see if Camping will foot the bill.

Original post 08/27/2010
And now, The Bankruptcy Blog is going to touch on what happens to your debt after you die.

What happens to your debt after you die is not a topic that’s likely to come up on its own at the dinner table, but it’s a good idea to talk about this matter anyway. It’s important for you and your loved ones to know when you’re responsible for each other’s debts post-mortem—and when you’re not.

A recent post from WalletPop offers an outline of what to expect after the death of a family member who owed money. Here’s a summary.

  • Can debt be inherited? In most cases, debt does not automatically pass from one family member to the next, according to sources. That means that, if you receive a letter from a creditor demanding payment on a loved one’s debt after his demise, it’s a good idea to do some research before paying.
  • Debt in community property states: One of the exceptions to the above rule has to do with state law. If you live in a community property state (find out here), you can inherit debt from a dead spouse (but not from a sibling or parent).
  • The link between debt & inheritance: Another exception involves the relationship between a person’s debts and her legacy. If, for example, a parent dies and leaves you money or a house in addition to consumer debt, you’re legally obligated to pay the debt before collecting the inheritance.
  • What about debt from a co-signed loan? If you co-signed a loan for a family member or friend and that person passes away, you are responsible for paying the remainder of the loan.

How to Know if You’re Responsible for a Debt

One unfortunate truth about debt and death is that some creditors might try to collect on a debt whether or not it’s legal for them to do so. Worse, some scam artists may specifically target survivors in an attempt to trick them into paying money they don’t really owe.

If you’re mourning a loved one, the last thing you likely want to deal with is finances, but following these guidelines might help protect you from fraudsters:

  • Avoid sending a creditor any money at all until you’re sure that you are actually responsible for repaying a debt.
  • To determine your obligations, ask the creditor to send you written documentation of the debt’s original purpose, the terms of the debt and the exact amount currently owed.
  • If possible, consult a bankruptcy lawyer to help you work through the complexities of covering debt’s after a loved one’s demise.
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This entry was posted on Friday, August 27th, 2010 at 11:00 am and is filed under Finance 101: Secure Your Future. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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