Inherited debt can be a big problem for anyone. When a loved one passes away, it is a painful time. But it becomes financially challenging as well if you have to inherit the debt of your loved ones.
Also, if you already have multiple debts, inheriting a new debt can be like financial suicide for you. Depending on the debt inheritance laws, many types of conditions arise.
According to the laws, you may avoid inherited debt. However, as it is about legal matters, it is vital to know the legalities. Let us try to find practical ways of avoiding inherited debt.
What is inherited debt?
Inherited pending obligations are those which are passed on to you after the death of your loved one.
Here is an example, when you are officially connected with a person’s obligations as a co-signer or guarantor, you have to inherit the debt. After all, your name is mentioned officially on the papers. Thus, you become legally responsible for whatever is left behind by the deceased in the name of debts.
What are the usual types of inherited debt?
Certain types of debt are most commonly inherited. These are
- Mortgages,
- Car loans,
- Medical debt,
- Credit card debt
You need to know once you inherit a debt, you can talk to the concerned loan provider about revising the interest rates. Lenders usually cooperate in such situations, especially when you already have multiple debts.
Some of the best direct lenders in the UK work on liberal policies in such conditions. After all, they also know they have to work according to the repayment capacity of the new debt bearer.
How to avoid inherited debt? Available exceptions
If you really want to get the inherited property, then you will have to accept some bitter realities as well. If you were officially connected with your deceased loved one in any loan application, the debt is your responsibility. Whether you want it or not, it becomes a part of your financial life.
But there are some situations where you can avoid it. For example, imagine you get a property in inheritance with a mortgage. You have two solutions. First, you claim that property as an owner, but with that, you will also get a mortgage obligation. Second, you sell the property and pay the mortgage.
There is another way to avoid inherited debt. Whenever someone dies, the debt is paid by selling the assets. In that case, the inherited property will also pay off your inherited debt. But if the debt is more than the total asset value of the deceased, the legally responsible person bears the debt.
The best solution is to talk to your financial advisor about this. They will provide you with the best suggestions according to your financial circumstances. They will suggest ways to relate to your relationship with the deceased person and your role in the inherited debt.
How to help your loved ones to avoid your debt?
Life is unpredictable, you never know what situation may arise. Thus, if you want, you can save your loved from the burden of your debts after you. Take these small steps, and you can do this.
- Make a repayment plan. Talk to your financial advisor to determine how you can pay off your current debts as quickly as possible. So that if something happens to you in the future, your family members do not have to bear the burden.
- Do take life insurance. If you leave your family members in the future, they will be in a financial fix. But with the money from your life insurance, they can pay off your debt and can help them in survival.
- Talk to your family/co-signers. It is important to talk to your family about debt inheritance in time. Talking about who will be most liable to pay your dues after you are gone can help resolve all issues at the right time. This can be a difficult task, but it is important to have clarity about inherited dues.
Are you entitled to pay off the debts of your elderly parents?
There are different rules regarding this in different countries and states. However, in the United Kingdom, adult children are not entitled to pay the obligations of their elder parents.
There is no legal restriction of any kind on them. In such a situation, if a lender or a finance company pressurizes the adult children to pay the debt, then legal action is taken against the lender.
What about the unavoidable inherited debts?
An inheritance debt is a legal matter, and you have your rights to it. But because it is a legal procedure, you cannot avoid your legal responsibilities. However, there are some ways to avoid inherited debt, as mentioned above.
However, the best thing is to take your next step only after consulting your financial advisor regarding the debts. You are legally connected with your loved ones, and you have mutual responsibility for your debts. In such a situation, the best way is to accept the debts.
However, this debt can be managed by some methods. For example, if you have multiple obligations of your own, you can convert all your debts into a single loan. Mostly, due to multiple debts, there is a risk of mistaken payments, and a bad credit situation can take shape.
However, for this also there are loan products like debt consolidation loans with bad credit and no guarantor. You can manage your debts very easily by using these financial solutions.
Conclusion
From the above-mentioned facts, you must understand that you need to go through a proper procedure regarding inherited debts. Take advice from your financial and legal advisor regarding the debts that officially belong to you.
Apart from this, if you qualify for exemptions, it is possible to avoid debts very easily. Therefore, it is important to make a careful decision before becoming a co-applicant or guarantor in any loan.
Some other conclusions are –
- If you have shared a debt with your loved one, it is important that you manage your debts. If the other person dies, you may have to bear the additional burden of their debt.
- If you want property and assets in inheritance, you will have to accept the reality of inherited debt. In such a case, if you are liable to pay any debt, then you have to pay for it. However, there are also ways, as discussed above, to avoid them but in a legal manner.