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What will happen to my debts when I die?

When you pass away, it does not mean that your debts will necessarily disappear. Your creditors — like the banks that issued your vehicle loans, home loans and credit card companies — will be able to make a claim on your estate for the money you owe them. At the end of the day, it's likely that most of these debts will be collected.

However, if your debts add up to more than your estate is worth, the remaining debts will die along with you.

More about debts and estate planning

Your heirs will not be responsible for your debts after you die. However, they will be affected by your debts. This is because the total value of your estate will be reduced by the claims made against your estate by your creditors. In fact, it may be necessary for your estate representative to liquidate some or even all of your estate assets to pay off your debts after you're gone. The remaining assets will then be distributed to your heirs.

Your creditors might still try to contact your relatives and ask them for payments to satisfy your remaining balances, but these payments will be voluntary and not required.

Debts belonging to married partners

The situation could be different for married partners. Responsibility for marital debts is often assumed by both spouses and surviving spouses will need to continue making payments on those debts. As for homes shared by two spouses, if one spouse dies and the other spouse inherits the home, the surviving spouse will be responsible to continue payments on any loans associated with the residence.

Some assets bypass probate and go directly to beneficiaries

The proceeds from a life insurance policy cannot be attached by creditors to pay off outstanding debts. Fortunately, all of one's life insurance policy proceeds will go directly to the named beneficiaries.

Plan for your debts when organizing your estate

One of the most important aspects of a solid estate plan involves planning for debts. Some estate planners who are heavily indebted, for example, might take out life insurance policies to ensure their loved ones receive financial support after they're gone. Whatever your situation, make sure you have considered all of your assets and liabilities in your estate plan.

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