What happens to the Debt of an Estate

What Happens to the Debt of an Estate? – Ask Odle

Once you have made an estate plan (with probate) you may wonder what happens to your debt after your passing. You may have assigned all of your material possessions to your children and loved ones, but what about all of your credit card bills?

Only Cosigners are Responsible

The main thing people don’t understand is that the beneficiaries of the estate are not personally responsible for the debt of the estate unless they cosigned the credit card or loan. So, if you are the only one on the credit card or loan, nobody is responsible for that debt except you. In order to collect the debt, creditors have to file a claim in the estate. Creditors can still collect the amount from the estate fund, but none of the beneficiaries are personally liable.

What if dad left me $10,000, but it came via life insurance (not through the estate)? Legally, if the estate is bankrupt, the creditor is out of luck. Now it becomes your choice–should you pay off dad’s debt with the life insurance money you received?  As a lawyer, I will tell you that there are no legal actions the creditor can take to force you to pay your dads debts. Morally, you must answer for yourself. Most people choose to pay it out of moral obligation, however, 9/10 times, the creditors will write off that debt.

Pay Off Your Debt While You Can

While you can’t plan for an untimely passing, you can plan to pay off your debt ASAP. I’m personally a fan of Dave Ramsey’s philosophy – a debt free life is the best life. If you can, pay off your credit cards and loans as soon as you are able. If you don’t have any debt when you pass, it will free your loved ones from having to worry about your debt. Though they aren’t required to pay it off, they may feel that it is the moral thing to do. You can protect them from that choice by getting rid of it before it’s a problem.

Make Your Estate Plan Clear

Another way to protect your loved ones is to make sure your estate plan allocates your assets appropriately. Hire an experienced estate planning attorney to help you protect your assets and give your loved ones financial security, and peace of mind.

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