Losing a spouse is one of the hardest things a person can go through. Making this time even harder is dealing with any debt that might have been left behind.
Debt Repayment After Losing a Spouse
The first few months after losing a spouse are the hardest. As you adjust to your new life without your spouse it can be incredibly hard to find your footing – especially your financial footing. Even in death, there are some debts that cannot be wiped out. If you live in a community property state – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin (community property law also applies in Alaska in certain circumstances) – a husband and wife are responsible for paying the debts of the other even after the other spouse dies.
Executor and Estate
Often when a person passes away there is very little time to tie up their financial affairs and debts before they pass. Property and outstanding bills still need to be taken care of. The person who makes decisions regarding the deceased’s property and debt is called an “executor.”
An executor must first determine how much property the deceased person had upon death. This property is referred to as the deceased’s “estate” and it includes property, including houses, cars, personal property, and household possessions. The executor also needs to calculate how much debt is still owed. This debt will need to be paid from the estate, if possible. If this debt is unable to be paid, the executor must decide if the property needs to be sold so that the proceeds can be used to pay the debt.
In community property states, a husband and wife are equally responsible for paying the debt of their deceased spouse. If one spouse owes money, a creditor is able to sue and get a judgment against the remaining spouse.
A spouse is not responsible for paying another spouse’s separate debt, only debt deemed “community property”. This means debts that were accrued before the marriage are exempt.
Dealing with significant debt after a spouse passes away can be overwhelming, especially if the estate is not enough to pay the debt. In these cases, you might want to consider working with a debt consolidator or a bankruptcy attorney to determine your options.
Facing Large Amounts of Debt
When you’re facing large amounts of debt after a spouse’s death, the situation can feel hopeless. Because of this, you might want to consider debt consolidation. Debt consolidation means that all of your smaller loans get paid off with one large loan. So you essentially get one lump sum to pay off your smaller loans so that you only have one monthly payment rather than several monthly payments. The their behind this is one payment is easier to manage than several. And the main goal is it lower the interest rate and monthly payments while paying off your debt in a quicker amount of time.
The process of consolidation stream-lines debts and can help to free yourself from financial burden while lowering costs. You want to have a good understanding of what debt consolidation is so that you can decide if it’s for you. If you’re able to pay off your debts within 6 months to a year, you might just consider being really strict. If you look at your debt and see years and years of saving that feels impossible, then you might consider debt consolidation.
What Debt Consolidation Companies Do
Here’s what a debt consolidation service does:
- Closes credit accounts so you cannot use them.
- Sets up an automated monthly payment based on your budget that gets distributed it to your creditors.
- Negotiate lower APRs or reduced late fees with your creditors
It’s important to note that debt consolidation is not the same as debt settlement. Debt consolidation allows you to pay your debts in full without causing negative consequences to your credit. Debt settlement is the process of paying off debt to a creditor once a sum is mutually agreed to. This sum is usually less than what is owed. Typically, only unsecured debt (for example, credit cards and medical bills), is eligible for debt settlement.
Understanding Secured vs. Unsecured Loans
A secured loan, such as a mortgage or a car loan, means you pledge the property, your home or your car, to secure the repayment of the loan. Here’s an example: you obtain a mortgage loan – the house is security for repayment. If you do not make the home, the mortgage lender can take the house back through the process of foreclosure in order to satisfy the loan.
Unsecured loans are based only on your promise to pay. These loans are not “secured” by an owned property that can be foreclosed on or repossessed to pay back the loan. Credit cards and student loans are technically unsecured loans because there’s nothing that can be directly repossessed – such as a house or car – if the borrower is not able to pay the loans back. Unsecured loans have higher interest rates because they carry more risk for the lender.
Debt Consolidation Through Secured Loans
Debt consolidation is a little easier when it comes to secured loans because there are physical “securities” that exist for repayment. This is a safer situation for the lender. For example, you can refinance a home, take out a second mortgage, or get a home equity line of credit. Another example is your car loan – the automobile is used as collateral in case you cannot pay back the loan. Assets can also be used as security for a loan. A 401K loan uses your retirement fund as collateral. Life insurance policies can be used if they have cash values. Financing firms can often loan you money against lawsuit claims, lottery winnings, and annuities.
Consolidating With Secured Loans – Pros
Often, secured loans carry lower interest rates than unsecured loans because they are safer for lenders. This fact can help you save your money on interest payments. Lower interest rates tend to make monthly payments lower and thus more affordable. Rarely, but in some cases, interest payments are even tax deductible.
Consolidating With Secured Loans – Cons
The biggest “con” of consolidating with secured loans might seem obvious: when you pledge your assets as collateral and are unable to pay back the loan, you are putting your property at risk of being foreclosed on or repossessed. If you’re unable to pay the loan back, you run the rid of losing your house, car, life insurance, retirement fund, or whatever else you might have used to secure the loan. Certain assets, such as life insurance or retirement funds, may not be available to you if the loan is not paid back before you need to use them.
Debt Consolidation Through Unsecured Loans
Unsecured personal debt consolidation loans used to be quite common, but they are less likely to be available to people seeking them today. Usually, this type of loan requires a borrower to have very good credit. A credit card or personal loan debt for consolidation is often given with a no interest, or low interest, introductory rate. Often times this amount balloons after a specified amount of time.
Pros of Consolidating With Unsecured Loans
The biggest benefit to unsecured debt consolidation loan is that no property is placed at risk. Also, an interest rate might balloon to higher than the rate on a secured loan, but it can often be distributed over several different credit card balances, thereby lowering your interest burden and your payment.
Balance Transfer Options
Balance transfer options on no-interest or low-interest credit card offers can be a very useful tool, but they can often be tricky. Check there is no transfer fee in the fine print which negates the savings. Also, the no-interest or low-interest period is generally limited to a set amount of months. You’ll want to be sure you can pay the debt off during this time. If not, you run the risk of paying a much higher interest rate once the period expires.
If your debt is too high to be consolidated and you are finding it increasingly hard to manage your debts, you might want to consider bankruptcy. A bankruptcy attorney, such as the ones at Resnik Hayes Moradi, will be able to look at your financial situation and determine if bankruptcy is a viable option for you. They will also evaluate your options for avoiding bankruptcy if other options exist. There are many different ways to discharge your debt and find the financial relief you have been looking for.
Working with a Bankruptcy Attorney to Help Consolidate Debt
We will help you explore all of the debt relief options available to you. Though we specialize in bankruptcy law, we do not suggest bankruptcy as an option if we do not think it is the best option for them. We are committed to helping our clients resolve their debt problems, achieving true debt relief and avoiding potential debt consolidation scams. Contact us for a free consultation.
Resnik Hayes Moradi LLP
510 W. Sixth Street Suite 1220
Los Angeles, CA 90014
Toll Free: (213) 699-3055