In general, we do not inherit the debts of the deceased. For the most part, debts die with the individual. However, debts can end with inheritances, and there are some exceptions to the rule.
Inheritances and debts of the deceased
When a person dies, the assets of this person are used to cover the debts before being divided among the heirs. When there are no insurance lenders, the inheritance is used to pay off the debts of the person. Long-term financing, such as vehicles or real estate, usually has the obligatory lender insurance. Since credit cards and personal loans do not have these insurances, most of the time, and the deceased person’s assets are used to pay these debts.
Here are some of the major debts and how they are treated after death:
When a parent leaves behind a mortgage, there are several options. If the deceased has sufficient funds, they can be used to pay the mortgage, allowing the heirs to take possession of the property. Alternatively, an heir may choose to take over the mortgage and property while continuing to make the normal payments. The heir can also refinance or sell the home to pay the full sum, or the insurance lender can pay off the financing altogether.
The options are pretty much the same as with mortgages. You can repay the loan with the assets of the deceased, transfer the loan to the heirs, refinance or sell the car.
Personal Loans and Credit Cards
These debts must be repaid with money and estate assets if possible. If there are not enough assets, the money is divided between the creditors and the remaining balance is taken as loss by the creditors.
When a person dies, government-guaranteed student loans are forgiven. Private loans are not and need to be repaid in the same way as personal loans.
Ensure that your debts will be paid through insurance and other means before you leave your heirs on bad sheets. (Photo: inheritlawyers.com)
They are unenforceable, that is, goods that can not be used by the estate to pay the debt of the deceased:
- Salaries and single family property;
- Unalienable goods and those declared, by voluntary act, not subject to execution;
- Furniture, belongings and domestic utilities that guarantee the residence of the executed, except those of high value or that surpass the common necessities corresponding to a average standard of living;
- Clothing, as well as personal belongings of the executed, unless of high value;
- Salaries, allowances, salaries, wages, retirement benefits, pensions, peculums and montepios; the amounts received by third-party liberality and destined to the maintenance of the debtor and his family, the earnings of self-employed and the fees of a liberal professional;
- Books, machines, tools, utensils, instruments or other movable property necessary or useful for the exercise of any profession;
- Life insurance (usually already includes the payment of the deceased’s debts);
- Materials required for works in progress, unless they are seized;
- Small rural property, as defined by law, provided it is worked by the family;
- Public resources received by private institutions for compulsory application in education, health or social assistance;
- Up to the limit of 40 (forty) minimum salaries, the amount deposited in savings account.
Situations in which children can inherit debt
Although we are generally protected from inheriting debts, there are some cases where children will be considered legally liable to pay the money due:
Loans with more than one holder
If the second person signing the loan is still alive, you will assume full responsibility for common loans and credit cards. Be careful when you share your debts with someone.
Holders of joint accounts with share income when acquiring a loan or credit card will be responsible for paying off joint debts, even if one of the people will die.
Avoid difficult situations with inheritances
The first step is the most difficult. Talking to your parents or children about death and debts can be difficult, but this should be done. Make sure that the loans and assets are properly insured, so as to ensure the financial security of the heirs.
Whatever the circumstances, know your rights. Debt collectors can be ruthless and persistent even when you have no legal obligation to pay the remaining amount. Do not feel bad about triggering justice if you are harassed by financial institutions, banks or anyone else charging debts.
You should always remember that the estate, that is, the inheritance, will be used to pay the debts before being divided between the children and any other heirs. The inheritance may even be negative, but debts are only inherited and divided in the ways described above. If you are charged out of the above conditions, immediately consult an attorney to know your rights.
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