Even though people might not like talking about it much, it’s vital to put some thought into what happens to your assets and outstanding credit when you die. If you have an outstanding personal loan, home loan, or credit card and something happens to you, who is responsible for the credit – and what if your partner dies and leaves you with a loan?
Here are some essential answers about debt after death, what can happen, and how to prepare.
If you die with outstanding debt, there are a few possible scenarios for what can happen.
• The outstanding debt has to be settled out of the deceased estate’s funds
• The outstanding debt goes to court and has to be paid from other assets when there are no available funds in the deceased estate
• The outstanding debt has to be paid by the surviving partner (when married without a prenuptial agreement) or when co-account holders
• Sometimes credit insurance plans will kick in and cover some (or all) of the loan amount
You could be at risk for your partner’s credit if you are married without a prenuptial agreement, or if you have a joint bank account that was used to apply for the loan. Make sure that you know where you stand with your financial situation before applying for any accounts, loans, or credit – and always read the terms and conditions for essential information on your loan.
Insuring the Inevitable
Insurance seems like money gone to waste sometimes, but until the day you actually need it. Sometimes you’ll have the option of life insurance or credit insurance when you apply for a loan, account, or credit card – and this can help if and when someone dies with outstanding credit. Where possible, always opt to have an insurance policy in place, and understand what for (and how much) your coverage is.
Set Up a Will – Today
Having a will in place mentions more than just what happens to your assets; it can also state what happens to your credit in the event of your death. Speak to a lawyer about setting up a will today if you don’t have one already. They can point you in the right direction, and they can even help you to set up a prenuptial agreement before or after a marriage that protects you and your partner against bad credit.
What Happens If…?
Feel like you’re stuck? Death is a traumatic event on its own, and issues with creditors can only worsen the stress. Here are some essential questions about debt after death answered for when you aren’t sure of your next steps.
I’m NOT responsible for my partner’s debt, but the creditors keep calling me.
If you are being mistakenly contacted by a creditor about someone else’s debt, your first step is to contact the creditor themselves and explain the confusion. If this doesn’t help, approach the National Credit Regulator (NCR) and report the creditor accordingly.
I’m responsible for my partner’s debt, but I can’t pay it. What now?
If you are responsible for someone else’s debt but unable to pay it, the process might go to court. The best advice possible is to speak to debt counselling services and the creditors themselves as soon as possible: In many cases, another agreement can be reached – but in the worst-case scenario, assets might be attached to pay for the credit after a lengthy court case.
What happens if I die with outstanding credit?
If you die with outstanding credit, what happens to it will depend on whether or not you’ve prepared for it during your life – including whether you have a will in place, whether you were married with a prenuptial agreement or not, and whether you had adequate insurance in place to cover it. Preparing early is essential.
Alex J. Coyne
Alex J. Coyne is a writer, journalist and card player. He's been published in international publications including Moneyweb, CollegeHumor, Funds for Writers, Great Bridge Links, Bridge Canada Magazine and a variety of others