Do I Inherit a Loved One’s Debt When They Die?
The average Canadian household currently reports spending as much as 14.9% of their incomes on debt payments alone each month.
Those are high statistics, but luckily, there’s plenty of advice regarding insolvency and consolidation to help you through.
This can make a massive difference, but it does omit one vital consideration – what happens to debt after death?
After all, if 47% of Canadians are currently struggling to cover debt payments, it follows that a large percentage of those won’t be debt-free by the end of their lives.
This can cause extra stress for families at a time when they need it the least.
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Luckily, in general terms, there is no such thing as inherited debts.
A creditor certainly can’t pick up a debt and place it directly on your shoulders.
But that’s not to say that debt will altogether disappear if someone dies.
Exploring what happens to debt after death
So, what exactly happens to debt after death?
If you don’t pay it, then who does?
In truth, there are a few different possibilities for post-death debt clearance, and they include:
Estate-based payments
In the vast majority of cases, debt payments will come directly out of the deceased’s estate.
Creditors will approach this in different ways, but, most often, this happens before inheritance is calculated and shouldn’t impact beneficiaries.
In fact, the only instance in which a creditor should pursue relatives directly is if they are joint survivors of debt, and have signed contracts to this effect in their own name.
Debts covered by insurance
In some cases, especially that of credit cards., it’s possible that there is insurance in place to cover remaining debts.
In this instance, it’s vital to discover whether the deceased was paying into any such plans and whether those payments provided them coverage in the event of their death.
If you can prove this promptly, it should be possible to clear debts without risking your loved one’s estate.
Uncollectable debts
If there is no joint lender, estate, or insurance policy, creditors will have no choice but to write off debt altogether.
In this instance, the only contact they should have is when they ask for proof that there is no estate for payment.
Simplifying debts after death
With the above in mind, you’ll want to do whatever you can to simplify the debt claiming process.
After all, having creditors sniffing around is the last thing you’ll want to consider as you grieve.
In reality, while there may be little you can do to stop the legal process of debt collection, there are steps you can take to simplify the process.
As well as providing peace of mind, this ensures debt collection doesn’t slow the inheritance process.
And, all you have to do is:
- Send death certificates to all creditors as soon as possible
While debt doesn’t legally fall on your shoulders, it is your responsibility to promptly notify creditors of this change.
You can do this by seeking copies of the death certificate and sending them to all relevant creditors so they can take necessary action.
- Set aside beneficiary money
While assets can cover debt costs, some families find prefer to set aside any beneficiary money to deal with this.
In cases of property split across various individuals, this can be a much simpler and faster way to clear debts without risking payment yourself.
- Seek professional legal advice
It’s also vital to note that you should seek professional legal advice that deals directly with debt.
A solicitor can help here to some extent, but this isn’t a specialist subject for them.
Instead, a licensed trustee can help you to navigate this sometimes-murky debt water without tripping up.
For instance, a licensed trustee with experience in the matters can let you know that paying any debt from your personal account makes you legally liable.
They can also fight your corner when communicating with the deceased’s debt collectors, ensuring that both parties reach satisfactory conclusions during this confusing time.
Can you inherit debt?
No, but that doesn’t mean it can’t still come back to bite you.
Ensure that this isn’t the case by knowing your rights and making sure that you’ve got someone fighting in your corner every step of the way.
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?
Canadian Bankruptcies
How to File for Bankruptcy
What is Bankruptcy?
Bankruptcy FAQs
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?
