What Happens To Your Debt When You Die?
No one knows for sure what happens to us after we die. We do, however, know what happens to our debt: it lives on. Specifically, any debts you leave behind transition over to probate court and becomes the responsibility of your estate. Before we go further, it’s important to note that Arizona is a community property state, meaning that surviving spouses are responsible for clearing any debts that were acquired during the marriage. Spouses are not responsible for any outstanding debt brought on before or after the marriage. In most instances, it will be up to the executor of your estate to settle your outstanding debts – typically by using your assets to settle any claims. If there is no money left in your estate, creditors will usually erase the debt.
For homeowners, any outstanding mortgage debt is typically handled in one of three ways:
- Funds from the sale of other portions of your estate are packaged to pay off the mortgage
- An inheritor will have the option of assuming the mortgage
- The home will be sold, with the proceeds going to satisfy the balance of the mortgage first before being shared with others as stipulated in your will
Credit Card Debt
Unlike mortgages and automobile loans, credit card debts are not secured by assets. If there is an account co-holder, that person is responsible for the outstanding balance. Joint account holders – not authorized users – are held responsible for any remaining debts on the card.
Retirement Accounts and Life Insurance Proceeds
Normally, assets from retirement accounts 401(k)s, pension plans and IRAs will go directly to your beneficiaries and are off limits to creditors. Any proceeds from your life insurance will go directly to your named beneficiaries – not creditors. However, if the beneficiaries are also deceased, the proceeds revert back to the estate – making them fair game for settling any outstanding debt. Making sure your finances are in order is best done when you consult with a neutral party skilled in all of the legal consequences that could arise. To speak with an attorney adept at all the legal responsibilities of debt and bankruptcy, contact the offices of Statewide Bankruptcy here in Arizona at (602) 225-2222.