What Happens If I Die Before the Loan Is Paid Off?

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Last Updated: May 12th, 2021

Anyone who has debt (and that includes just about all of us at one time or another in life), has felt the burden, stress and anxiety associated with this sometimes-crushing load.

Credit cards, student loans, auto loans, mortgage loans, business loans, and other forms of debt can linger for years seemingly always knocking at your door. While this is something that can that can gnaw at the back of one's mind throughout life, another burning question people have is what happens to my debt after I die.

There is not one cut and dried answer for every situation, but there are a few guidelines that will hopefully provide some comfort and security.

A debt does not "die" when a person does. Creditors still want their money. When someone passes away, their debts become part of their estate. An estate is essentially a collection of the person's assets and liabilities-things you owned and things you owed.

Your estate will be the responsibility of whoever was deemed in charge. This will be someone known as the executor or personal representative. This person or group will attempt to sell off any assets in order to pay off the debts. However, if more is owed than is owned, don't worry-family members are not obligated to reach into their pockets to pay up.

In fact, there is a ruling from the Federal Trade Organization (FTA) that protects surviving family members from having to take care of a deceased's debts. It reads, in part:

"Family members typically are not obligated to pay the debts of a deceased relative from their own assets. What's more, family members - and all consumers - are protected by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to try to collect a debt."

In a scenario such as this, creditors are simply out of luck.

Of course, if you have a joint account with someone who passes away, it can be a different story. If you also signed the loan agreement, you will likely be responsible for shouldering the debt. This goes for business partners and spouses.

The same is usually the case for co-signers-whether or not the co-signer was related to the person who has died. Co-signers are typically left with the debt, expect for in the case of federal student loans, which are discharged at the time of death.

As for secured debt such as cars and homes, surviving family members will be responsible for the balance on the loan. So if you are planning on leaving one of these assets to an heir, make sure the debt is paid off or that you leave them with the means to pay them off at the time of your death.

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