The only sure and direct way to clear debt is to pay it off fully. When it comes to debts may not be easily erased. For example, if a debtor owing the IRS tax debts files for bankruptcy, the debts may not be fully erased. Hence, some debts may be hard to erase or forgo without some form of repayment. Some debts are carried on even after a person has filed for bankruptcy and will be offset against their future income or assets.
CAN A SPOUSE BE LIABLE FOR THEIR LATE SPOUSE’S DEBTS?
When a person dies and they still owe creditors or credit facilities debts, it would generally be offset against the deceased’s estate. In practice, no one can be responsible for paying off another person’s debts regardless of their relationship. This is because the liability of debts cannot be easily shifted to another party. However, there are a few exceptions to this rule:
- If there’s a co-signer to the loan: If the deceased had a co-signer at the time of taking the loan, then the liability of repaying this loan falls on the co-signer in the event of the other party’s death. Should the co-signer, in this case, be the deceased’s spouse, then the liability falls on them.
- If the state’s law requires the spouse to repay a specific type of debt: In some states, their laws require that spouses of deceased debtors pay back the debts.
- If there is a joint account holder on a credit card debt: If the account in question is a joint one, then the joint account holder is liable to pay back the debt. However, if the account just an authorized user, they are not liable to pay back the debt.
- If the law requires the administrator of the deceased’s estate to pay an outstanding bill out of property that was jointly owned by the surviving and deceased spouse: Some state laws may state that the executor of the deceased’s estate should issue the outstanding bill to the spouse and have them settle the bill.
However, the deceased’s estate is left to settle the debt to the extent it covers.
WHAT YOU SHOULD DO IF YOUR LATE SPOUSE IS A DEBTOR?
Losing a spouse can be a very difficult time, emotionally, financially, and mentally. Hence, the last thing anyone who lost their spouse needs is getting calls from credit companies, credit facilities their spouse owed to ask questions or request for repayment.
So what exactly does a spouse do when their deceased spouse has a lot of creditors at the time of their debt?
- Notify the credit facilities: The first step is to reach out to the credit facilities involved in your spouse’s death before they get to you to close the accounts maintained in your spouse’s name. If you both maintain a joint account together, it is also important to inform them that one of the parties is no longer alive. The credit facilities will in turn send a report to credit bureaus to update your spouse’s credit status and report.
- The credit bureau will flag your spouse’s account: This is to prevent people from applying for credit using your spouse’s account in the future. You can ensure your partner’s account is flagged by notifying the bureau yourself by sending a copy of their death certificate, their legal name, their social security number, date of birth, and date of death. A copy of a means of identification will be required to establish that truly a relationship subsisted between you and your partner.
OTHER TYPES OF LOANS THAT SPOUSES AND OTHER RELATIVES MAY BE REQUIRED TO FINANCE EVEN AFTER THE DEATH OF THE DEBTOR.
- AUTO LOANS.
Auto loans are usually secured by the car purchased with the loan. Hence, the creditor or credit company may retrieve the collateral if the proceeds from the estate are not enough to finance the loan fully. If a family member, spouse, or any other loved one chooses to cover the monthly payments, then the car will not be retrieved.
- CREDIT CARD LOAN FOR A JOINT ACCOUNT.
If a deceased spouse has an active credit card loan with the bank account you both jointly share, then you may have to repay their loan as the second party to the account.
If a person dies and they are owing mortgage loans on properties or houses, these debts will most likely be transferred to the spouse. However, other heirs to the property can inherit the property but not the mortgage and can’t be held responsible for refinancing it. The mortgage will be paid from the deceased’s estate or will be sold to finance the loan. Any extra income or money left from the dale may be shared amongst the heirs.
- STUDENT LOANS.
Federal and state student loans may be cleared after a deceased beneficiary’s death when the family and relatives of the deceased apply for a loan discharge. However, if the student loan is privately financed, the discharge terms and conditions may vary from creditor to creditor.
Although some private lenders may be gracious enough to write off the loan if the person is deceased others may not.
As of 2018, new legislation ensured that private student loans lenders must release co-signers of the loan, should the primary borrower or debtor dies.
CAN MY DECEASED SPOUSE’S UNPAID CREDIT AFFECT MY CREDIT SCORE OR REPORT?
In general cases, a deceased’s spouse’s credit should not affect you at all since the liability was not incurred by you. However, if you are a co-signer, a joint account holder to the debt, non-payment of the loan may likely affect your credit score and report. If you are in a situation where a debt collector or credit company tries to shift your deceased spouse’s liability to you, then you should reach out and employ the services of professionals to find out if you are truly responsible for such debts. If you are not legally responsible for such dents then you are not required to pay back and it cannot affect your credit score in any way.
Losing a spouse is already a very difficult dilemma in life. Adding several debts from your late spouse to the pile of challenges is definitely not the best way to go. Hence, it is important to seek legal help from professionals like lawyers or companies in the debt relief industry to ensure that you are protected as much as the law can from hungry creditors and banks that may want to rope you into settling your spouse’s debts.
Finally, if you are a borrower and debtor and you wish to save your spouse and family from all these troubles, if you die you can just create an insurance policy. An insurance policy can help the deceased family receive the policy’s benefits when they die. This money can be used to offset and pay off debts, take care of funeral costs and finance any other expenses that may come up due to their death.
Overall, one way to avoid putting your spouse and family in an uncomfortable financial situation after your death is to ensure that you are not taking too many loans from different creditors without figuring out a way to pay them back. Rather, focus on increasing your income legally and reducing your expenses.