Many people are so concerned with dealing with their credit card debt while they are alive, that they do not even think about what will happen to it if they pass away. Unfortunately, debts do not always die with a person, and for those that have not made the necessary provisions, surviving family members could end up paying for it. Lenders and debt collectors do not make this any easier when they contact relatives and friends telling them to pay the debt with their own money. So, what happens to credit card debt after a person dies in Florida, and how can you protect your loved ones?
The Estate Will Pay Debt
A person’s estate is everything they own after they die. Assets often include real estate, bank accounts, retirement savings, and more. The estate is settled after a person passes away, and anyone that has a right to get paid from the estate is notified. The executor of the estate plan or the personal representative will notify all creditors that have a right to a portion of the estate either by contacting them directly or through publication.
Lenders and debt collectors only have a limited time to recover debts from the estate. After creditors have collected their share, the remainder of the estate is passed on to the beneficiaries.
How Different Debts Are Handled After Death
A person may carry many different types of debt during their life, and these are not all treated equally in the event that a person dies. The most common forms of debt a person still carries, and how they are handled after the borrower passes away are as follows:
- Personal loans: A personal loan can consist of a single agreement drafted between a borrower and a bank, or several credit cards someone held during their life. Personal loans are typically unsecured loans, meaning there is no collateral attached to the debt. If the estate does not have enough assets to pay this debt, the creditor or debt collector is usually out of options.
- Student loans: Student loans are also usually not secured, but they are often discharged when a borrower dies. This is particularly true of federal student loans. Private lenders of student loans may have different policies.
- Mortgage loans: Mortgages and other similar home loans, such as lines of equity, are secured with the property. If the debt is not properly paid, the lender can start the foreclosure process in an effort to sell it and recover at least a portion of the debt owed. The foreclosure process does not typically start immediately, as federal law allows specific relatives to take control of home loans.
- Car loans: Auto loans are also secured with collateral, which is the vehicle. When auto loans are not paid, the lender does have the right to repossess the vehicle. Still, the majority of lenders are only interested in recovering the debt and are likely to allow relatives to keep the vehicle if they are willing to take over the debt.
Although lenders and debt collectors can take assets and money from the estate in order to recover their debt, there are ways to prevent this from happening.
Property Exempt from Probate
Creditors and debt collectors can only try to recover debt from the property that is in probate. It is not uncommon for assets to pass to beneficiaries without the need for probate. Many people do this because probate is an expensive and lengthy process. Still, it can also provide the benefit of keeping assets away from creditors to pay back debt, and ensure heirs receive what is theirs.
- Designated beneficiary: Some assets include a designated beneficiary provision that stipulates how assets are to be handled after someone’s death. Beneficiaries are the people chosen to receive assets upon someone’s death. For example, life insurance policies typically outline certain beneficiaries and the death benefits available under this type of coverage are typically protected from creditors.
- Joint tenancy: Joint tenancy with rights of survivorship is a very common way to allow assets to avoid the probate process. This is commonly seen when a married couple has a joint bank account together. If one of them passes away, the surviving account holder has 100 percent control of the account. This option is sometimes risky and is not always appropriate. It is important to speak with an attorney before entering into joint tenancy to determine if it is worth it just to avoid paying a debt.
Trusts and other arrangements are also a very effective way to keep certain assets out of the probate process and therefore, protect them from lenders and creditors.
Accounts with Multiple Borrowers
While there are ways to protect assets from being sold to pay creditors and debt collectors, there are times when friends and family members may be found responsible for paying a debt. These most often when an account has multiple borrowers, such as:
- Joint accounts: Sometimes, an account such as a credit card has multiple borrowers and when that is the case, each person is considered 100 percent responsible for the debt.
- Co-signers: Co-signing a debt is a risky act because if the borrower cannot pay the debt, it becomes the responsibility of the co-signer. While there are a few exceptions in the event of death, many co-signers are still responsible for the debt even if someone passes away.
- Authorized borrowers: Some types of debt, such as credit cards, allow for one primary borrower and additional authorized users. Due to the fact that authorized users do not have an agreement with the company, they are typically not responsible for the debt if the main borrower passes away. However, if you can foresee a death and go on a big shopping spree, you could still be responsible for repaying the debt.
If you are found responsible for a debt and a collector has taken legal action against you to collect it, it is important to speak to a Florida debt defense lawyer.
Call Our Debt Defense Lawyers in Florida Today
Facing a debt lawsuit may seem hopeless, but there may be ways to defend against it. If a creditor or lender has threatened to take legal action against you, our Florida debt defense attorneys at Loan Lawyers can help. Call us today at 954-807-1361 or contact us online to schedule a free consultation.