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Acknowledging the likelihood of debt after death

On Behalf of | Apr 2, 2020 | Estate Planning |

Most people in Oregon do not expect their financial debts to outlive them. However, reports that almost 75% of Americans will owe an average of $61,000 to creditors after death.

Those with an estate plan and those considering implementing one should take a hard look at their current financial situation and how they expect it to play out over the rest of their lives. NerdWallet explained that knowing how different types of debt pass on to the estate can help surviving family members avoid assuming responsibility for obligations that are not actually theirs.

Mortgages and secured loans

The liability for mortgages and other secured debts like home equity and auto loans passes to joint owners or co-signers. In most cases, the surviving owner can continue to make scheduled payments with no change in the loan terms, or sell the asset to satisfy the debt. Furthermore, federal law prohibits mortgage lenders from attempting to collect the full balance from surviving owners after the death of another.

Student loans

The death of the named student or parent automatically discharges federal student loans and parents’ federal PLUS loans. Unfortunately, with a few exceptions, this is not the case with private student loans. Co-signers on private loans become responsible for the remaining debt, and, unlike a mortgage, no laws protect them from lenders demanding immediate repayment.

Credit card debt

Joint account holders, who were already equally responsible for making credit card payments, assume full liability for the debt after the death of the other holder. If the deceased was the sole owner of the account, then his or her estate must satisfy the debt.

If all of the assets are gone before the estate pays the entire balance, then the creditors have no additional recourse. Credit card collection agencies may contact the surviving family and attempt to regain as much of the debt as possible, but they may not force anyone to assume the responsibility. This includes any named authorized users on the accounts, who do not share the same liabilities as co-signing joint holders.