Palm Springs Law Blog

Wednesday, August 11, 2021

Three Big Things to Know About Your Debt When You Die

For most people, debt is an unfortunate part of life. But is it also a part of death? You may be wondering what happens to your debt after you pass away and whether it will impact your family. Here’s what you should know.

When you die, all of your assets become a part of your estate and your estate becomes responsible for your debts. The amount of time that creditors have to make a claim against the estate in California is about a year. They must do so in probate court, the court responsible for the administration of estates. Here are some other considerations:

1. Federal student loans are forgiven – but not necessarily private ones.

Whether parents on behalf of their children took out the federal student loans in question or whether the student took them out him or herself, they are still forgiven. Put simply, if the borrower or the student passes away, the federal student loans disappear. However, an original or certified copy of the death certificate must be presented as proof of death.

Unfortunately, for private student loans, there is no law that requires lenders to cancel them. While some programs do provide for forgiveness at death, others will instead place the debt on the estate of the deceased individual.

2. Beneficiaries can be protected from creditors.

There are some ways in which beneficiaries can be protected from creditors. Unsecured creditors generally are unable to collect money from accounts in which you have completed a beneficiary form. For instance, if you properly leave your child as a beneficiary to your life insurance policy, it’s unlikely that any unsecured creditors can collect money from them. However, if you fail to properly assign beneficiaries to one of your accounts prior to your death, such funds would simply go to your estate and could be taken by creditors.

3. Credit card debt is only discharged under certain circumstances.

One of the more frustrating forms of debt upon death is credit card debt, which does not go away when you die. Generally, the estate of the deceased must pay the debt from its assets. If someone were a joint borrower/holder on the account, they would be held responsible for the remaining credit card debt. It does not matter whether or not the joint borrower actually contributed to the balance on the credit card so long as he or she signed a joint application for the card.

The only way in which credit card debt is discharged is when an estate lacks value and the owner of the credit card passes (and there is no joint holder), the credit card company must write off the debt.

Heritage Legal, PC Helps Those in California to Help with Estate Planning and Creditors

When a loved one passes away, it can be a very emotional time for those they leave behind. With emotions running high, it’s still important to understand whom you are liable for their remaining debt. Don’t assume that you are liable just because you are told so. This is where a knowledgeable and experienced California estate planning attorney can be a tremendous asset.

At Heritage Legal, PC, we understand the importance of protecting your interests and the interests of those whom you care about most. We can help you to create a comprehensive estate plan that fills all of your needs and plans ahead for your loved ones. To learn more or to schedule a free consultation, contact us today!

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