What Happens To Your Debt After You Die? Lawyer Explains

Expert studies show that around 340 million Americans carry some form of debt, most commonly being mortgage debt, student loans, and personal loans. But what happens if you still have unpaid debt after death?

Does your debt automatically disappear, become the government’s problem, or become a burden to someone else? This question became more pressing when famous lawyer Ugo Lord made a video of a similar situation. 

The viral video starts at a funeral with the deceased person’s POV looking at Dr. Lord leaning in. The famous lawyer whispers to them, “You still owe me a thousand dollars… I’m just gonna marry your wife instead”, before walking away smiling. 

While humorous, it stirred different positive reactions and speculations in the comment section, with one user mimicking Dr. Lord, saying, “And that makes the wife liable. For the damages that happened next”. 

What really happens if you die without repaying your debt?

When someone passes away, their debt is naturally paid out of the money remaining in their bank account or personal savings. If that’s not enough, your assets and properties will be used to compensate for the loan. 

Even if you have a will, some states require the executor to settle any outstanding debt before the valuables are given to the survivors. However, if the money and property left are insufficient to cover the debt, the money will go unpaid.

Can creditors go after family members to settle the debt? 

The law doesn’t require family members to repay the debt owed by the deceased person, whether it’s their spouse, children, or parents. 

But that doesn’t mean they’re entirely off the hook! In some situations, lenders can hold survivors of the deceased liable for the debt. 

Some examples include if you co-signed the loan, have a joint account on a credit card with debt, or live in a community property state that requires surviving spouses to pay the debt with jointly-held property. 

For the last example, that rule applies in California, Idaho, Texas, New Mexico, Nevada, Louisiana, Arizona, Wisconsin, and Washington. 

So, if you live in one of these states, Ugo Lord can still come for your wife! 

Creditors have a limited time to reclaim their loss

But it’s important to note that creditors have a time limit to reclaim their loss when you die, which is the probable process. This phase is when the court decides how to divide your estate among your creditors and heirs. 

Depending on the state, the probate process deadline varies from a few months to a year, and if creditors don’t come during that time, it means that they have missed the deadline to file their claims against the estate of the deceased person. 

If creditors fail to file their claims within the deadline, the personal representative can distribute the remaining assets to the heirs without paying the creditors. 

However, this does not mean that the creditors cannot try to go after other assets not part of the probate process. These include joint bank accounts, life insurance policies, retirement benefits, or property held in trusts.

Ultimately, what determines how lenders can get their money back depends on the type of debt, the type of asset, and the laws of the state where the asset is located.

Therefore, hiring a lawyer to help you understand your rights and obligations and advise you on the best course of action to protect your interests is crucial.

Author: Susan Murphy