After your death, your estate will be responsible for your debts, and in the first place it will have to cover secured loans.

Debt is an integral part of life for many Americans. Most likely, almost everyone at least once in their life took out a mortgage, personal loan, student or car loan in order to cope with their needs and wishes. However, what happens to a loan when someone dies? People ask this question for a variety of reasons: while some people want to know what will happen to their debt after they die, others are already experiencing the death of a loved one and at least know if they have any debt obligations.

Most often, after death, all your property, that is, the sum of your assets, will be used in order to cover all your existing debts. However, if you have a shared debt with someone, such as a mortgage loan between you and your spouse, then the other person will be held responsible for it after your death. The same applies to co-signed loans since the debt is shared.

What Happens To Your Debt After You Die?

There are a few key points about what happens when you die with debt. Below we have identified three main ones that you should pay attention to:

  1. Your property will be responsible for your debts

Immediately after the death of a person, his probate comes into force. Probate is a process during which your posthumous field will be recognized. An executor or personal representative will also be appointed to administer your estate and regulate any debts and distribution of inheritance. It is at this moment that it will be decided who will be responsible for your debt, who will share your debt with you, and so on. It will also depend on the state of your residence and its laws.

Recently, many states have simplified the process of probate, however the executor still has to follow a formal legal process which may vary depending on where you live. Since each state has its own laws, it will be important to familiarize yourself with them before distributing assets.

If, before death, a person did not leave a will, this will mean that all assets will be distributed in accordance with the laws of the states. It is also important to note that for some assets, such as real estate, the location of the property will apply and not your state of residence. Most often, in the absence of a will, all income from the inheritance goes to spouses, children, parents and other relatives. However, if after the death of a person who did not have a probate, it is not possible to establish his relatives, all property becomes the property of the state.

If, after your death, your property is not enough to cover all existing debts, they will remain unpaid and will not pass to relatives. Exceptions are spousal obligations, co-signed loans and shared accounts.

  1. Secured debts will be repaid first.

You probably know that all debts are divided into secured and unsecured. Secured loans are less risky for lenders because they are secured by collateral that the lender will receive if the borrower defaults on the loan. Thus, for example, a mortgage is secured by your home, and an auto loan is secured by a purchased vehicle. Unsecured vehicles are typically personal loans, student loans, medical bills, credit cards, and more.

According to probate, all secured debts are paid first followed by unsecured debts. Thus, if after the death of a person his money is not enough to pay off his debts, then his property will go to pay them. However, in the case of a secured loan that has not been repaid, the lender will be able to take the property in order to consolidate the debt, however the lenders who provided borrower with the unsecured loan may not receive any compensation.

  1. Your spouse may inherit your debt depending on where you live

States can have different attitudes about who should be responsible for the debt of a deceased person. Most often, the spouse is only liable for the joint debt and assets, which means that the assets remain separate unless they are recorded by both spouses. However, it is important to pay attention to the fact that in the community proper states, the couples share with you all the debts that were acquired by them during the marriage. These states include Arizona, Idaho, California, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

What Happens To Personal Loan When The Lender Dies?

After a person dies, anyone who owes him money will be called as a creditor of the estate. Thus, it will be possible to say that you will owe money not to this person, but to his property. Thus, if you owe money to a person who has died, this does not mean at all that you are freed from debt. If there is a legal contract for your debt, then you are still obligated to repay that money. So, if you have a legal obligation to pay off the debt, then in a month it will not disappear. Moreover, failure to return money to property can lead to serious legal consequences, which can be as massive as if the person were alive.

You probably know that part of the probate process involves settling all of his debts. This includes both debts owed by the decadent and debts owed to the decadent. That is why if you owe money to someone who has died, then this debt is considered an asset of the dependent’s estate. Further, these assets will be used to pay off the debts of the inheritance and will be distributed among the heirs in accordance with the terms of the will or inheritance laws (if there is no will).

However, in the event that the debt is not registered, then its return will be more of a personal decision.