When a loved one passes away, the last thing anyone wants to think about is money. Unfortunately, just because someone passes away, it does not necessarily mean that their debt also goes away. But where does this debt go? Technically, debts cannot be inherited-but some can be passed down. To begin understanding inheriting assets, you must also learn about what happens to any possible debt that is left behind.
To start, there are certain debts that you can end up being responsible for:
- Joint Debts
- Hence the name, joint debts are debts that are held by both parties. An example of this would be if you and your partner had a joint credit card. After your partner dies, the responsibility to pay for this credit card will solely be on you.
- Co-signed Debts
- Similar to joint debts, cosigned debts are also passed onto you if your partner is unable to do so anymore. When co-signing a lease, you are responsible for whatever the borrower is unable to pay. This means that even after the primary borrower dies, you will still be responsible for whatever is left to be paid off.
- Mortgage or Home Equity Loans
- If you inherit a house with outstanding mortgage or home equity loan, you will have to make a decision about what you want to do with this estate as well as how to handle the debt.
Thankfully, not all debts can be passed down. Debts such as individual credit card debt, federal student loans, and more usually will not be pushed onto a surviving family member. Rather than chasing after a relative to pay off the debt, creditors usually submit a claim in which the amount of debt can be paid off by estate assets. If the debt is more than what the assets can pay off, it is possible for creditors to pardon the debt.
If you are concerned about creditors taking away your inheritance, there are some assets that are protected from creditors:
- Retirement accounts
- Life insurance
- Living trusts
Because these assets are considered “non-probate assets' ', they cannot be taken away by the creditor regardless of how much debt your loved one had. If you are a beneficiary of any of these, you will be protected from creditors.
Now that you know about what kinds of debts can be or cannot be passed down, you may also want to know how to deal with this sudden debt. As mentioned previously, sometimes creditors cancel the debt when there aren’t enough assets to pay it off. But what happens if they don’t cancel it? In that case, be sure to get familiar with your debt collection laws. In accordance with the Fair Debt Collection Practices Act (FDCPA), debt collectors know if they are violating the act or not. Do not allow debt collectors to harass you and violate your rights. Oftentimes, debt collectors call once to ask for information about the person responsible for the deceased person’s debt. The best way to begin tackling passed down debt is to find a lawyer who is knowledgeable in this field. If you or a loved one is having trouble dealing with inherited debt, please contact the Law Office of Inna Fershteyn at (718) 333-2394.