Till Death Do Us Part: a Tale of Debt and the American People

MoneyDebt is all too common in the United States. More than one-fourth of Americans admit to not paying their bills on time, and according to a new report, this outstanding debt doesn’t disappear until death.

New data from Credit.com shows that a whopping 73% of Americans will die with some type of debt. And no this figure isn’t just a couple thousand, the report shows that the average total debt at the time of death is $61,554.

Experian FileOne and Credit.com studied the finances of Americans who were alive in October 2016 but died in December 2016. The members of the study were from all social and economic backgrounds, and this figure includes mortgage debt, auto loans, personal loans, and student loans.

To put into perspective just how much this entails, the average borrower died with $25,391 in student loans, $17,966 in auto debt, $14,793 in personal loans, and $4,531 in credit card debt.

But what happens to a person’s debt when they die? Most of the time, the debt is relieved with the issuance of a death certificate, but it is important to remember that even still, this debt will go on to affect your beneficiaries.

“Debt belongs to the deceased person or that person’s estate,” explains Darra L. Rayndon, an estate planning attorney, to Fox Business.

For example, if the deceased has enough assets to cover their outstanding debts — such as a home, properties, or vehicles, these must be liquidated for the creditors to get paid. Then after all debts are settled, the beneficiaries would get their portion.

But it is not always that simple. Each category of debt is handled in a different way; community property estates and accounts with co-signers or co-applicants are handled on a case by case basis and may be quite the headache for the executor of the estate. However, student loans are immediately relieved in a case of death.

Considering that 70% of Americans have at least one credit card, it looks like the American debt problem is going nowhere anytime soon. For those worried about burdening their families after they pass, the best thing to do is to create a will.

A will is a concrete legal document where an individual will list out what beneficiaries get what percentage or parts of their estate. If this is not completed at the time of death, the state will write one and divide the assets based on state law – which is very different by state. It is important to understand the state rules to ensure that your final wishes are carried out.

However, it is important to remember that estate planning is more than just creating a last will and testament. Financial experts at Credit.com recommend completing a trust, a power of attorney, health care proxy, living will, HIPAA release, and a letter of intent in addition as a way to ensure financial protection at the time of death.

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