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What Happens To Your Debt When You Die

What Happens to My Debt When I Die? 10 Things Every Canadian Debtor Needs to Know

Depending on the stage of life you’re in, you may be wondering what happens to your debt when you die. Can it be inherited? What debts are forgiven at death? Will you be leaving loved ones with the hardship and stress of dealing with your debt at a time they are grieving?

These are legitimate worries. Many hard-working Canadians find themselves trapped in a cycle of debt. The latest numbers show that for every dollar of disposable income Canadian households have, they owe $1.73.

If you want to protect your family from dealing with your debts when you’re gone, here’s what you need to know.

#1. Your financial obligations do not die when you do.

Your debt is not automatically forgiven on your death.

#2. Your unpaid bills are paid by your estate, not your surviving family members.

In Canada, debts cannot be inherited or passed down in a will. When you die, your debts do not transfer to your parents, children, or spouse/partner.

Instead, your unpaid bills are paid by your estate. Your estate is the total assets you own at death, such as your bank accounts, car, home, and other possessions.

If you have a will and you’ve appointed an executor of your estate, your executor is charged with paying your debts from the estate. Your assets will be used to pay off all your debts before any beneficiaries are paid what you may have left them.

If your estate doesn’t have enough money to repay creditors, the creditors will write off the outstanding balance as non-collectible.

Alternatively, the estate can file a Consumer Proposal or Bankruptcy. You should speak with a Licensed Insolvency Trustee to learn more about this.

#3. The above is true unless your debt has been co-signed by someone else.

The only debt a surviving relative is responsible for are those that they have contractually agreed to pay and have signed for.

These include:

  • co-signed bills and loans;
  • Joint mortgage payments;
  • Joint credit cards; and
  • Supplementary credit cards (for which you are the primary cardholder).

By co-signing on a debt, the co-signer agrees to make payments when the person they signed for is no longer able to. This includes when that person dies.

If your estate can’t cover the joint debts in full, creditors can rightfully contact the joint debtor or co-signer for repayment and hold them responsible for it.

#4. If your joint debtor or co-signer can’t pay the balance of the loan, they can file a Consumer Proposal or Bankruptcy.

Unfortunately, filing for insolvency is common among seniors who can’t afford to pay their debts on a reduced income.

#5. A term life insurance policy can help pay off your joint or co-signed debts.

Through a term life insurance policy, you can ensure that your co-signer or co-borrower won’t be burdened by your debts when you pass away.

#6. The balance of your mortgage will not be transferred or assigned to a beneficiary.

Unless there’s a joint debtor on your mortgage, a lender may not ask for payment from your surviving relatives.

#7. Unless the debt is jointly owned or co-signed, creditors cannot request payment from your surviving relatives.

Let your family know what to expect if you die with debt. Some lenders may request payment of your debts from your surviving spouse or relatives. This is not within the creditor’s rights. A complaint against the creditor can be filed with the appropriate consumer protection office.

If your family member did not co-sign or co-borrow a loan with you, they are not automatically responsible to repay that debt. Creditors must instead look to the estate for repayment and make a claim thereon if they can prove they’re owed money.

#8. A little estate planning can go a long way.

It would be prudent to hire a lawyer and draft a will. A will sets out how you want your estate to be distributed and protects your family. You will be able to ensure that any minor children are safe and their assets are properly managed.

Otherwise, your estate will be distributed according to the rules set out in the province you live in (the laws of intestacy).

#9. Handling your debt now can help protect your family later.

The best way to make sure your debt doesn’t affect your heirs is to eliminate it.

Even though your family is not officially liable for the debts you leave behind, creditors can eat away at your assets. Your beneficiaries will end up feeling like they’re paying off your debts because…

Your debts are paid before any inheritance proceeds are paid to your beneficiaries.

Your executor may need to sell some or all of your assets to make money to pay your creditors. If those assets were intended to go to a particular beneficiary, the beneficiary may not receive what you intended to leave them.

#10. The best way to eliminate your debt is to contact a Licensed Insolvency Trustee.

No matter how indebted you are, you can take steps to get a handle on your debt. By doing so, not only will you alleviate what is likely a main stressor in your life, you’ll leave your family better off for it.

Adamson & Associates Inc. Licensed Insolvency Trustee Can Help

Our seasoned experts can assist you with the full range of debt relief options available, from simple budgeting all the way to Bankruptcy.

Your debts aren’t going away on their own. It’s time to take a stand and resolve them. Doing so now, will help to protect your family later.

Call Adamson & Associates Inc. today at 519-310-JOHN (3546) for a free, no-obligation consultation.

John Adamson, Licensed Insolvency Trustee Ontario

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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