Who pays debts when you die?
Dying while in debt is a common occurrence. Many people remain in debt their entire lives.
Yet when you die, your family members do not inherit your debt like they inherit your assets. If a debt also belongs to someone else in addition to you, that person is responsible for payment. Some family members prefer to pay the outstanding debt of the deceased because they feel it is the right thing to do, yet rarely are they legally required to do so.
Responsibility for payment of a debt is restricted to the person who originally signed for the account. If each of your debts is in your name only, no one but you should suffer the consequences for lack of payment. Upon your death, your family may opt to distribute your assets to your creditors--but they are not required to.
If your family does not use your assets to pay off your debts, creditors can opt to file a lawsuit against your estate to recover any money owed. Creditors must adhere to state-regulated time limits when attempting to collect money from your estate.
Joint accounts are accounts owned by two or more people. Each of the individuals listed on the account must have signed paperwork agreeing to a joint account.
If you die, responsibility for debts accrued under joint accounts passes to the other person listed on the account. Each account owner is individually responsible for the debt in its entirety. This allows the creditor to pursue collection activity for the full debt from either party if the other party dies or is unable to make payments.
Some accounts, such as credit card accounts, give you the option to add authorised users. An authorised user is someone you permit to make purchases and accrue debt in your name. An authorised user, however, is not a joint account holder. When you die, responsibility for payment of the debt is not transferred to the authorised user since he is not the owner of the account. Even if all of the debt was accrued by the authorised user, he is still not legally responsible for payment of the debt once the account holder dies.
Minor children who are entitled to child support from a deceased parent will still be eligible to receive payments. Those payments, however, will be awarded to the child in the form of Social Security benefits. The U.S. government provides Social Security to children of a deceased or incarcerated parent until the child reaches the age of 18 or marries. Your children are only eligible for current government support when you die. Although the custodial parent may file against your estate to collect back child support, any amount beyond what is collected in the suit will be waived.
Although people who do not own a debt are not legally obligated to pay it, unscrupulous creditors may still attempt to collect from your family members if you die.
Collection activities may range from lies and harassment to illegal practices such as changing the name on an overdue accounts to that of your spouse or next of kin. Any family in this situation should immediately report the offending creditor to the Federal Trade Commission.