Idaho Law Blog
By Lane V. Erickson, Attorney
Society is consumer driven. Home mortgages, student loans, car loans, credit cards and other debt are a normal part of society and our lives. I am often asked by my clients about what happens to their debt when they die. In most circumstances, I have to deliver the bad news that debt usually does not die with the debtor. The general rule in Idaho is that if you have debts when you die your Personal Representative may have to liquidate your assets (including homes, cars, and other assets) to pay your debts before anything is passed on to your loved ones. Here are 4 things you should know about debt and death:
1. Death and Credit Cards. If a loved one leaves behind thousands of dollars in debt on credit cards, you probably have nothing to worry about, unless you are a co-signer on that card. When this occurs you have a financial loss on top of an emotional one.
On the other hand, if your name is not on the account or you are just an authorized user but not a co-signer, you’re probably in the clear. It’s likely that the credit card company still try to see if you’ll pay the bill. If it was your spouse that passed away, and your name is associated with some of the debt, you can expect the credit card company to insist that you pay up.
If you spouse dies with credit card debt that your name is not on, we recommend that you send a letter to the credit card companies explaining the circumstances. Sometimes it requires sending a copy of the death certificate as well. In these circumstances, the credit card companies will often write off the debt and leave you alone. If they don’t, you may need help from an attorney to convince the credit card companies to go away.
2. Mortgage or House Debt. Things are a little more clear cut when dealing with a mortgage on a home. If the deceased’s house isn’t paid off, and payments stop being made, the bank has the right to foreclose and take the house away. However, if you live in the house as a co-owner, or if you inherited the house, as long as you inform the bank and continue making the payments, you should be fine.
Even if you don’t assume the payments, federal law can’t force you out right away. In Idaho, there are two kinds of home debt used by banks when making a home loan. These are (1) a Deed of Trust, and (2) a mortgage. Either of these types of debt require the bank to provide clear written notice of a foreclosure. They also require the bank to provide a good deal of time for the debt to be “caught up” before a foreclosure can occur.
If your loved one owned a home with mortgage debt and the bank is threatening to foreclose, talk with your attorney about the options you have. More than likely, you will find that you have more options to resolve the mortgage issues that you might think.
3. Car Debt. Most households have at least one car and many have more. Cars are expensive enough now that most people usually can’t pay cash for one. Rather, most people finance a car with a loan. If you have a loved one that passed away, and he or she was still making car payments, the vehicle can be repossessed by the lender. However, if you contact the lender and begin making the payments, you may be able to keep the vehicle.
The real question is whether you want the car or not. So long as your name is not on the loan as a borrower, co-signer or guarantor, you have no legal obligation to make the car payments. If you don’t want the car, simply call the lender, explain what has happened, and invite them to come and pick the car up.
4. Student Loan Debt. With every passing generation, the amount of student loan debt individuals carry throughout their lives is growing. It is not uncommon now for people to pass away while having substantial student loan debt. While not all student loans are the same, most do not survive the decedent. There are some exceptions. If your deceased loved one consolidated their loans with a spouse, the spouse is still responsible to pay off the student loan. Additionally, if a spouse, parent or other person is a co-signer on the student loan then it survives and will have to be paid. It’s only when the student loan was solely in the name of the deceased that it goes away upon their death.
If you have any questions about how a student loan is set up, contact the lender and ask for the loan documents. Look at the signature lines to see who signed for the student loan. Also, take the time to read through the loan agreement. Likely there is language in the loan agreement about what happens if the borrower were to die.
5. Use Common Sense and Be Careful About What you Do. The good news about debt and death is that you normally cannot inherit the debt of your deceased loved one. So long as you are not a co-borrower or guarantor the debt of another person will not usually become your debt. There are some common sense exceptions to this to be aware of. If your deceased loved one got cash advances from credit cards and gave the money away to you just before they die, the credit card companies will likely fight with you about getting the money back. Likewise, if your loved one purchased a car or a home and then gave it to you as a gift, you will be on the hood for the debt, if you want to keep the gift. Finally, if your loved one had large amounts of debt and simply gave away all of their valuable assets as gifts before they passed, the creditors will likely have good grounds to get those gifts back so they can be liquidated and the money used to pay the debt.
Additionally, it’s easy to be overwhelmed with the emotions of the passing of a loved one. However, you must be vigilant in reading every document you sign that has anything to do with the finances of your loved one. If you don’t understand a document, then don’t sign it. If you sign a document agreeing to pay a debt of your deceased loved one, then the debt has now become yours. So the simple rules are: read before you sign, and if you don’t understand it don’t sign it. There will be time later for you to take care of most of your loved one’s finances later.
If you have any questions about the debts of your loved ones, and how this will affect you or other heirs, contact your attorney.
Call us toll free at 877-232-6101 or 208-232-6101 for a consultation with Lane Erickson and the Racine Olson team of Estate Planning attorneys in Idaho. You can also email Lane Erickson directly at lve@racinelaw.net. We will answer your Idaho Estate Planning questions and will help you solve your personal estate planning needs.