Hello Bill, My mother will be 75 in November, she owes 15,000 dollars on a credit card and owns a condo worth about 40,000. She's wondering what the credit company will do if she passes away before paying the debt. Thank you for your time and any advice.
A common question asked concerning debt is what happens when you pass away. Many individuals assume that when they die their debt is forgiven or possibly written off by the lending institution, but it does not work that way. The reality is that if you pass away while still in debt, your surviving family members, or heirs to the property may be held liable for the money that you still owe. Typically, a will controls financial affairs after a person's death. A will distributes assets, not debts. However, before any assets can be distributed to the heirs, all the debts must be paid. Therefore, assets are sold to pay for any debts that remain. Only after the debts are paid will the remaining assets be distributed among the beneficiaries of the will.
Inheritance laws vary by state. If the state you live in (or the deceased lived in) invokes "community family property" laws or "joint and several" provisions, heirs to an estate may be deemed responsible for the debts of a deceased person. The rationale is that anyone staking claim to the assets of an estate, should also be willing to accept its liabilities. A few states are beginning to place limitations on the amount of estate money or property a creditor can claim. Most creditors will still try get what is owed to them. The only way that debt can be forgotten after death is if there is no money, property, or other assets left behind. If money cannot be collected from an estate then creditors will likely not go after surviving family members.
One way to pay off the credit cards is to go in for a secured debt consolidation loan. This type of loan is essentially a home equity loan which is used to pay off your other creditors. Secured consolidation loans help many consumers by consolidating all of their debts into a single monthly payment with a lower interest rate and payment amount. The big considerations for getting 'approved' for a refinance loan (typically called a mortgage refinance) are Loan to Value (typically rule of thumb is that 80% is reasonable), debt to Income (typically anything above 50% is very high, and anything below about 30% is good) and lastly credit rating (a FICO score is an indication of your credit worthiness and ranges from 300 on the low end to 850 at the top).
If you want to see if this loan can be done, Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at: Free Mortgage Refinance.
Your mother may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to the creditors, these programs negotiate lump sum settlements with the creditors, frequently reducing the debts by 50% to 60% of the principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though, they will significantly damage your credit while in the program and for at least a year or two afterward. However, the hit to the credit may be well worth the benefit of ridding oneself of credit card debt. A debt settlement program is probably the fastest way to resolve you debts.
If your mother's health deteriorates, try and work to pay off any debt that is owed. She may prefer to leave her assets to you or other family members in an inheritance, but it is also important to remember that many creditors will get their money one way or another. Using savings or property to pay off debt will prevent your family from having to go through difficult meetings with lawyers and creditors.
Hopefully, one of the options I have described above may be able to help you. I encourage you to explore the Bills.com Debt Help page to read more about these and other options available to you.
I hope this information helps you Find. Learn. Save.