March 29, 2016

Although the traditional answer to this question is that it depends, there are numerous factors that can influence what will ultimately happen to your debts when you pass away. What happens next depends on whether or not anyone co-signed for the loan, the size of the estate you’re leaving behind, where you live and the kind of debt.

Your surviving spouse will assume responsibility for any outstanding debts if he or she co-signed a law with you. Typically, other heirs like your children are not liable for your debt unless they inherit assets that are tied to the debt or assets that could be sold to cover that debt. In a situation involving a mortgage, your heirs will need to pay off a loan, refinance, seek a modification, or continue making payments if they intend to keep the property.

If your heirs decide to sell the home, the mortgage lender will have first rights to any sale proceeds. Anyone who inherits a property that has taxes owed will also inherit the liability for those taxes. When it comes to student loans, it matters the type of loan. Parent plus loans and federal student loans are usually cancelled when the borrower passes away. Private student lenders, however, can still go after any co-signer for debt that remains. Personal debt like medical bills and credit cards usually does not involve going after heirs unless those individuals co-signed for the debt. That being said, these creditors could make claims on the estate. Consulting with a knowledgeable New Jersey estate planning attorney can help you plan ahead.