A Legacy *Not* Worth Leaving: Do You Know Who'll Inherit Your Debt?

A Legacy *Not* Worth Leaving: Do You Know Who'll Inherit Your Debt?

Thinking about death can lead to lots of existential meandering: Is there an afterlife? Why are we here in the first place?

But here's one you may not have considered yet: Who will get saddled with your debts after you pass away?

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If you don’t know, don’t panic. Credit.com put together a guide to figuring out what will happen to the money you owe—and who'll be responsible for paying it. Read on to find out how you can prepare, so you don’t leave your loved ones in the lurch.

Credit Card Debt If your spouse was a joint account holder or if you live in a community property state, she may assume your credit card debt. (A community property state is one in which both spouses are considered equal owners of martial property, so any debt you incur during the marriage belongs to both of you.)

The only reason why friends or family would be responsible for this kind of debt is if they co-signed the loan. Otherwise, the assets in your estate may have to cover the debt.

Mortgage Debt If you and your spouse held a mortgage together, he'll have to continue paying it in order to keep living in your home after you pass away. If he can't afford it and wants to refinance the loan, he'll be required to prove he has a decent credit score and can manage the payments.

If your spouse isn’t on the mortgage, however, he may still be able to assume the loan if the home was left to him in a will, for example.

Student Loans Federal student loans and parent PLUS loans typically get canceled when the borrower dies. Private loans, on the other hand, aren’t always—and usually require a co-signer, such as a parent or spouse, who'd be stuck paying your loans after you pass away. And in some cases, lenders could “accelerate” payments after the borrower’s death, so that the balance is due right away.

Auto Loans If you had a co-signer on your auto loan, she’ll be responsible for this balance, too. And if you live in a community property state, your spouse may be tasked with making those payments.

But assuming you didn’t have a co-signer, a family member can buy your vehicle and pay off the debt or try to sell it back to the lender. But if the lender reaps less than what's left on the loan, it may try to collect the remaining balance from your estate.

So how can you avoid burdening your loved ones with financial problems in the wake of their grief? Other than simply digging yourself out of debt, you should consider taking out a life insurance policy and ensuring that the payout goes to the individual responsible for covering your debt. To be sure, double-check your beneficiaries.

On the flip side, if you have a loved one who has recently passed away, and you’re the executor of the will, you can pull a copy of his credit report to see which, if any, debts are outstanding.

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