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Richard C. James
Photo of attorney Richard C. James standing in downtown The Woodlands, Texas

Do debts die with you?

On Behalf of | Mar 29, 2022 | Estate Planning

There needs to be some restriction on the forgiveness of debts when people die. Otherwise, people on their deathbed could go to the bank, take out the biggest loan they can get, turn to their family and say, “Here’s a little something to remember me by.”

What happens to your debts when you die will depend on the type of debt. Here are some questions to think about when planning for the future:

Do any of your assets act as security for the debt?

When a lender gives you money to buy the house, they know that they can take the property if you fail to pay the money back. Outstanding mortgage payments will not disappear when you die. Whoever you leave the property to needs to keep up with them or sell the house and pay off the remainder.

Are any of the debts in a joint name?

You decide to go out on a high, treating the family to a massive celebration at an exclusive hotel. However much they enjoy it at the time, your spouse will be less happy once they discover you maxed out the joint credit card to pay for it. Because you used the joint one, your spouse becomes responsible for it. If you had used your personal card, the debt would have died with you.

Are you married?

The estate executor must notify creditors when you die. They can put in their claims, and the executor needs to settle them according to state law. If you are single, the executor will need to sell some of your assets to pay those debts. Yet, Texas is a community property state, so some assets you shared with your spouse could also get sold.

If you expect to die with debts, placing assets into a trust can protect them from being sold to pay creditors. It is one of the many tasks that an estate plan can accomplish.