If you’re assuming that your debts die with you, that’s likely to be incorrect.
The situation isn’t clear cut. Often, the executor of the estate will process your financial affairs but when there is debt remaining, it becomes more complicated and time-consuming.
Do Debts Get Handled Inside Probate?
The executor of the estate handles its management, including the timely disposal of homes, investments, boats, and other assets, settling any unpaid debts, and concluding remaining matters. At this point, hopefully, there’s some money left over that can be distributed to the various beneficiaries.
However, as the law firm of Cline Jensen will point out, in a situation when there are more debts than assets to repay them, it becomes far more complicated. And sometimes it becomes a legal problem too.
Co-Signed Debts
For loans that are co-signed, then both parties are responsible. Should one party on the loan pass away first, then the other co-signer is responsible for the full amount.
Therefore, someone who co-signs a loan to ensure it gets approved can get into deeper water than they expected if something untoward happens.
Student Loans: Forgiven or Not?
Student loans sometimes can live on after you die if they remain unpaid.
Federal student loans do not live on or need to be repaid. However, private student loans are another matter. It is up to the private lender as to what rules or clauses are applicable.
Medical Debts?
With medical debts, these are quite pernicious and are near the top of the list for repayment. It’s a complicated area that usually requires the services of a qualified attorney to resolve.
Any Medicaid from age 55 onwards is payable at the state level. If money is owed, then it could have already resulted in a lien having been added to a piece of real estate. In other cases, medical debts are often the first to be covered through the disposal of assets within the estate.
Community Property in the Certain States
Married couples in certain states (Louisiana, Arizona, Idaho, California, New Mexico, Texas, Nevada, Wisconsin, and Washington) have other concerns.
Within these states, the surviving partner assumes responsibility for the debts taken on during the marriage, including private college ones too. The spouse also doesn’t need to have okayed the debt before it was taken out either.
Care Home Debts
There are 30 states where filial laws relating to the responsibility of the surviving children can be impactful too.
Nursing home costs, hospital expenses, and other long-term care expenses can all be passed to the children to repay. Typically, this is related to adults who are the son or daughter of the person who has passed on. Fortunately, this is not pursued often but it’s good to be at least aware of the possibility relating to it.
It is always best to work towards debt elimination in your lifetime instead of giving up and not resolving them. Failing to do so can leave loved ones with a heavier burden than you ever intended and complicate or delay the probate too.
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