What Actually Happens to Debt When You Die?

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What Actually Happens to Debt When You Die

Have you ever heard people joke about committing suicide to get out of student loan debt? It may sound like a funny question at first glance, but there are plenty of people who legitimately wonder what will happen to their debt when they die. Many people end up in so much debt that they don’t see any reasonable way to get free of it.

Paying From The Estate

Creditors get the first bite at whatever estate a person who has died passes on. What this means is that they are to be repaid out of the proceeds of the estate that the person leaves behind. Of course, most of us do not have great wealth to leave behind to our families. If we did have great wealth, it would be unlikely that we would have huge debts as well. Still, anything of value that a person owns is considered part of their estate. Debts owed are paid out of this estate.

Death Bed Expenses

The end of a person’s life is one of the most expensive periods of their life as well. It is a strange reality, but something worth noting all the same. The cost of care during this period in a person’s life is incredibly high. Some who find themselves in this portion of their life are also holding a life insurance policy.

That person may have intended to pass on the proceeds of the life insurance policy to their loved ones. However, if they find that their health concerns are eating up a large portion of that policy, then you might want to talk to someone about a viatical settlement.

How Viatical Settlements Work

A person with a life insurance policy and expenses they need taken care of may consider a viatical settlement. This is an agreement between themselves and another person. That other party comes in to purchase their life insurance policy at an amount less than its face value. This means instant cash for the policyholder, and the buyer takes on the policy. It is a mutually beneficial agreement between the two.

Using this type of settlement may help keep the total number of debts that a person owes upon death a little lower. If that is true, then more of the estate can go to the loved ones that it was intended for in the first place.

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