Debt has become a part of life, and most Canadians have large amounts of it, whether through mortgages, credit cards, or other lines of credit. People commonly pass away with unpaid debts, and since so many people rely on credit, this is not surprising. It’s not always easy to discuss, but it’s critical to plan ahead of time for your debt before it gets overwhelming and becomes too much of a burden to bear. In this article, we will talk about what happens to debt when the owner passes on.

What Happens to Debt When Someone Dies

The short answer is that your debt is not passed on to your family, including your spouse. Instead, your estate bears the burden of your debt. This means that your estate must pay off any outstanding debts, as well as any taxes owed, before your assets can be inherited by your selected beneficiaries.

However, if the deceased and a partner co-signed a loan, the partner would be responsible for paying off the amount.

Insurance for credit cards?

In some circumstances, there might be a plan for insurance to pay the outstanding debt. Find out if the creditor has a protection plan for insurance that the deceased may have contributed to. Make sure you genuinely qualify for the coverage before paying insurance charges for a credit  insurance plan. You do not automatically have coverage just because you are paying the premiums. So be cautious and read the small print.

When a person passes away, what happens to their mortgage?

When you pass away in Canada, the mortgage typically remains attached to the home. For instance, Alice owns a house, and in her will, she stipulates that Mary will receive everything upon Alice’s passing. The house is worth $500,000, but the owner owes a mortgage of $200,000 on it. When Alice dies, Mary has two options: she can decide to take over ownership of the property (in which case the mortgage would then be in her name), or she can decide to sell the house, pay off the debt with her own money or Alice’s assets, and keep the money.

What about Joint Debt?

Despite the fact that debt cannot be passed down in Canada, joint debt might be a problem. You will both be responsible for repaying a joint loan that you take out with another person if they co-sign the application. If one of you died, the other would be solely liable.

In the case of credit cards, the majority of Canadians who share a card do so as authorized users rather than co-signers. Authorized users simply have the right to use another person’s credit card to make purchases; they are not required by law to pay off any card debt. However, it’s a good idea to read the fine print of your cardholder agreement if you do share a card with another individual to fully understand any potential consequences.

What role does a Will play?

A deceased person’s financial affairs are often managed through their will. But a will can only transfer assets, not debts. But all of the documented debts must be settled before any money may be given to heirs. Some items may be liquidated to pay the proven debts if there aren’t enough cash assets to pay off the debt load. The beneficiaries receive the residual assets once the debts have been settled.

If you are approached by a creditor to pay a debt for which you do not believe you are accountable, ask the creditor to provide you a copy of the contract with your signature on it. If you pay off a debt without asking for proof, it may be argued that you have taken responsibility for it, which could land you in further trouble. In this situation, always seek professional advice.

Conclusion

A debt expert can educate you on what may be taken from your estate, but unless they are co-borrowers, they cannot ask for payment from a beneficiary or executor. If creditors or bill collectors show up, they can also present a death certificate if necessary.

There is little or nothing we can do about death, but you can prepare yourself when it comes to debt. No matter how overwhelming your debt is, there is something that can be done about it. Your debt can even be reduced by up to 80% while all interest stops immediately. You can achieve this by speaking with one of our debt experts at EmpireOne Credit Solutions. We offer a free and friendly consultation and keep everything confidential. Do you want to know more about how you can be debt free? Fill out the form on this page and we will schedule a free consultation with you. You owe it to yourself to be debt-free!