Personal Finance

When you die who takes over your debt?

Death can be a tricky customer, coming at the most unwanted time without prior notice. The untimely death of a person, your father or relative, can make things go topsy-turvy, the effects of which can cause painstaking legal tangles if the deceased person has died without a will, is a single parent or has assets and debts. Here we see the case of a person dying without paying off his debts. The creditor will be desperate to collect the money due and most likely will put pressure on the immediate relatives to make the payment. Unawareness in this regard may some time lead the spouse or children to make the payment. But the fact is that none is actually liable to make the payment. It is all about knowing the intricacies of law describing the entire scenario.

As per the law, it was the person – now dead – was obliged to make the payments and as he/she is not existing now, the creditors can claim against the assets left over by the deceased. If you die without any assets, then the creditors will be left with nothing to claim against and there would be no responsibility on the heirs either to make the repayment.

Creditors can make claim over the deceased person’s property during probate (that is, while distributing the dead person’s property to his/her legal heirs and creditors). But here, paying back the debt assumes priority over distributing the property amongst the heirs. In other words, the legal heirs of the deceased person is obliged to use any of the valuable assets left behind first for compensating the creditors before starting to use it for one’s purposes.

Practically, as it is generally seen, most creditors won’t pursue claims on consumer debts after the concerned person’s demise. But creditors may pursue one if the debt is secured (that is, if the creditors retain a lien on a valuable asset) or if the debt involves a large sum of money.

From a borrower’s side, if you feel that the property is worth much more than the amount you owe, you have the right to specify in the will which all asset of yours should be used to settle the pending bills. Also, one can leave information regarding contacts for assets like an insurance policy, IRA, or employment retirement plan.

It is always better to have everything specified on a will should a person has some assets and also some debts, which are currently paid back regularly. Such a move can make matters easier for the heirs and all those would involve in future settlements.

Hence to answer the question, when you die who takes over your debt? Nobody really will take over the debt; instead it will be claimed from the property or assets you left behind. But you have the right to say which one and how it should be paid back from your assets.