Not All Loans Are Passed On! But Which Ones Do?
In recent years, we have seen typical loan repayment periods extended as the economy struggles and the average debt load increases. There is no real indication that these trends will be ending anytime soon, and one big questions consumers have started to ask is: What happens with my loans after I’m gone? Consumers with significant debt are mostly concerned with the obligations their families will be left in the event of their passing. These are obviously valid questions, given all of the expenses that are typically associated with a debt in the family. Here, we will look at what is likely to occur to your debts in these types of situations.
Student Loans
Of course, all loan types will have some differences. If you are dealing with federal student loans (provided by the government), all of your loan debt will be discharged in the event of your death. Private student loans, however, are a totally different story. In these cases, it will depend on the terms agreed at the origination of the loan. If you are concerned about the chances an untimely death will leave your family with debt obligations they cannot handle, it will be important to make sure that your loans will be discharged if you pass away. There is much more flexibility involved when dealing with private loans, so you will need to monitor your loan terms much more closely in these cases.
Credit Cards
For the most part, credit card debt is much more cut and dry, and will rarely be passed onto your family in the event of your debt. Of course, every lending situation is different and there is no guarantee that these debts will not be filtered toward your family members in some way (i.e. in diminishing the total value of your estate). But these types of situations are relatively rare and in most cases, you will not need to worry about the effects of your credit card debt with respect to the rest of your family. In most cases, your death will be viewed as something akin to a bankruptcy and be completely discharged without further obligation.
Home Loans
In the case of home loans, some of the most complicated details might emerge. The problem with this type of debt is that the bank still owns your house, and this will continue to be the case until the full home loan is paid-off. The bank is not going to forgive the remainder of your loan simply because you passed away, and this means that your home ownership is in question if your family is not able to fulfill your monthly mortgage payments. In these cases, your family has two choices: Cash-in on the home equity that has already been established (effectively selling the house), or continue to make the payments in your absence. Without this, the home will be foreclosed so it is important to prepare for these events well in advance. This is the best way to avoid unexpected surprises at a later date.
Investment Tip:
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