Does Debt Survive Death?
Debts After Death
Are you wondering what happens to debt in the event of someone’s death?
This article will tell you everything you need to know.
A recent report has revealed that an alarming number of people are expected to die with a certain level of debt hanging over them.
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Obviously, on one level, you’re free but what about the people who you leave behind?
That’s a different matter entirely because it’s possible for the responsibility of the debts to be passed on.
So, to understand what happens we need to explore a few different issues in detail as well as the facts that impact what happens to someone’s debt when they pass on.
Can You Inherit Debts?
The first important aspect to be aware of is that in Canada debts can not be inherited or passed on.
There is an exception to this rule and that’s if you signed up for the debt.
This could either be when acting as a guarantor or a joint debtor.
That’s another matter entirely but you do need to sign some form of legal agreement for the debt to be transferable.
However, that doesn’t mean that a creditor won’t seek out the payment.
They’ll still want the money back and they’ll try and get it any way they can.
They may start by asking a surviving member of the family or the spouse.
Remember, this isn’t a legal action to take.
The correct step would be for the creditor to look at the estate that the deceased left behind.
If they had assets, then the trustee would be responsible for ensuring that these were used to pay outstanding bills.
They should also notify all creditors that an individual has died and this is accomplished by sending a copy of the death certificate.
This will also include requesting that credit accounts are closed.
You might be wondering what happens with the will.
While debt can not be passed on through a will, assets can be.
However, this can not occur unless the debts have been paid off.
It’s possible that there isn’t enough money in the estate.
If that’s the case then the unpaid balance should be written off as uncollectible.
Again, the only exception will be if there is a guarantor or a co-signer.
What If There Are Joint Debts?
Joint debts are a little more complex.
The creditor will again start by looking to the estate of the deceased.
They will then leave the joint-signer of the debt on the same terms.
If there is not enough money in the estate to cover the debt, then they will ask the joint-signer to pay the loan in full.
Unfortunately, this is a common reason for insolvency in the elderly population through Canada.
That’s why it’s so important that you understand your financial responsibilities if your partner does die.
You need to make sure that you know what debts you are liable for and which you are not.
Don’t forget, some creditors may attempt to get you to pay up for debt that you are not accountable for.
If you have any doubts here, then it is definitely worth speaking to either a lawyer or a trustee.
How About Bankruptcy?
The trustee will contact the executor if someone who was bankrupt passes away before they were discharged.
It’s possible that the deceased individual had a life insurance policy where the beneficiary was the estate.
If this is the case then any proceeds will go to the trustee to pay the creditors.
If the beneficiary is the child of the deceased or their spouse then this will not occur.
The bankrupt individual may also have been entitled to gain a CCP death benefit.
In this case, this will go to the trustee as well.
However, the trustee will need to pay reasonable funeral costs so often this will be used to pay for the funeral.
As such, the creditors will not receive this particular fund.
Can Someone Who Is Deceased Claim Bankruptcy?
While rare, shockingly this can happen, however perhaps not in the way that you would imagine.
It’s not quite the case that a deceased individual is declaring to be bankrupt but rather that the estate is.
For instance, it might be possible that the estate is worth $400,000 but the debts were $800,000.
If this is the case then it’s more than likely that the person in charge of the estate will need to declare it bankrupt.
In some cases where the debt is lower, a consumer proposal could be an option that could be worth considering.
If there are assets in the estate then these can then be divided between the different creditors to ensure that the debt is paid off or at least a percentage of it is.
This works in the same way as a typical consumer proposal.
The creditors will need to vote to either reject or accept it.
If they stand to gain more from the consumer proposal than the estate declaring to be bankrupt then they will typically accept the proposal and move forward.
We hope this helps you understand some of the peculiar facts about whether debt can survive after death.
The important thing is to know what debt you are accountable for with regards to your spouse or your family.
Co-debtors and guarantors will be in a difficult situation if someone dies without paying off their debt.
If you do find that you are facing debt due to the death of a loved one, then we can help.
We provide expert advice on all forms of debt relief and will help you make a decision that matches your needs.
Get in touch now or complete an evaluation form and we will quickly help you arrange the right solution based on your individual financial situation.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
How to Amend a Consumer Proposal
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
Consumer Proposal Eligibility
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?