When someone with a loan dies, who pays for it?

If you leave any debts behind when you die, the assets that you’d hoped to leave for your heirs will be eaten up by the debt. In certain cases, family members may be on the hook for your debt.

Usually, the departed person’s estate is held responsible for paying all the pending debts. Personal representative, administrator, or executor handles the estate’s finances. Your debt is paid back from the money in the estate by the person who handles your finances.

• Estate Agency:

Since your estate is everything that you owned when you were about to die, the debts will become the responsibility of your estate. After your death, the executor of the estate will use the assets that are left behind to pay off your pending debts. It could be by selling your property to get money or by writing a check from a bank account.

• Mortgage:

In certain cases, the loan can become the burden of someone else. If there’s a joint homeowner, he/she becomes responsible. However, federal law bans lender from forcing the joint owner to pay off the loan. And if there isn’t any homeowner the executor pays off the loan. If the estate fails to make enough money, a family member has to take over the payments.

• Car loan:

The loan could be paid off by selling the estate. The creditor can take back the car, in case the executor stops the payment. If the money that comes out of the estate is not enough to repay the debt, whoever takes over the car can make payments and there is no chance that the creditor can take action.

• Home equity loan

If someone inherits the home, he/she can pay back the loan and retain the house. However, the lender can force the new owner to pay back the loan immediately which might lead to the owner, selling the house. Also, the lender and the owner might work together to let him take over the payments.

• Credit cards

If the estate is not enough to pay off the loan, unfortunately, the credit card company is out of luck since the debt isn’t secured by assets, like in the case of car loan or mortgages. However, if there’s any joint account holder, they would be held responsible to pay off the loan.

• Student loan

Here, the co-signers of student loans will be held responsible for unpaid debt. And in case of community property states, the partner will be in charge if the loan debt was sustained during the marriage. In some cases, the lenders might forgive the loan upon death.