If you have debts when you pass away, what happens to them will depend on what types of debts they are and what assets you leave behind. Any assets you have will be used by your estate to pay off your debts, according to the Penny Hoarder. It is up to the executor of your estate to identify all of your debts and see that they are taken care of. It is important to note that your debts are considered an extremely high priority and must be dealt with before any inheritances are given out.
If you die and do not leave any assets behind for your estate to dole out to your creditors, then your debts will likely just be written off. Debt collectors are permitted to contact the executor of your estate or your immediate family about your debts, but they are prohibited from misrepresenting that your family has any personal liability for your debts.
What happens to your debts will also largely depend on whether anybody co-signed any of your loans. If you were the sole borrower, your debts will be handled by your estate. However, if any one did co-sign a loan for you, that person will continue to be responsible for the full amount of that debt even if you die. The same would be true for you if the other person were to pass away. For example, if you and your spouse both owned your home at the time of your death, your spouse would assume full financial responsibility for the mortgage.
If you have a student loan with a private loan company, you may be surprised to learn that those types of loans are not forgiven upon your death. If there was a co-signer, he or she will have to assume full responsibility for the loan. If there was not a co-signer, your estate will have to pay off the loan. Some federal loans are automatically canceled upon the borrower’s death, however the amount that is forgiven may be taxable.
