If You Have Debt Make Sure You Know
By Saghir A. Aslam
Rawalpindi, Pakistan

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities).

Almost everyone dies owing at least some debt. Sometimes it’s only the last month’s ordinary bills plus final medical expenses. But there can be shocking surprises for survivors – debts unknown to the children and even to the spouse of the deceased. Heirs might discover large credit card balances, undisclosed home equity loans or gambling debts.

Creditors are entitled to payment, from the money and property (the estate) that your loved one leaves behind. But what if he or she didn’t leave enough to get everyone repaid? Can the creditors come after you?

Sometimes yes, sometimes no. With loan secured by property, such as mortgages, an heir has to keep up the monthly payments or else sell the property to cover debt. Unsecured loans, such as credit card debt and student loans are another matter. Your liability depends very much on the nature of the bill, the type of property and your state’s law. But here is what I can say generally:

• Some money is protected at death. Unsecured creditors cannot collect from life insurance payments, pay on death bank or brokers accounts, jointly held property that passes directly to the surviving owner, or retirement plans such as 401(k)s and IRAs that have named beneficiaries. They are safe but only if they were handled right. By “right”, I mean that the deceased filled out a beneficiary form for each account, naming the people who were to inherit. If this step was skipped, the funds will be paid into estate, where they can be used to satisfy the creditors.
• Your Signatures matter. If you signed up join application for credit card, you owe the balance, even if you didn’t know how high it had grown. If you were merely an “authorized user”, however, most states don’t require you to pay. (Note that authorized users should not use the card after the owner dies if the estate is broke. Such spending could be considered a fraud). Spouses are generally not liable for any separate debts their mate incurred before the wedding or, in most cases, after.

Rules in community property states, such as taxes and California, are different. Your community property can generally be tapped to pay a spouse’s debts. But creditors can take your separate property. In any state, you will still owe any private debt you co-signed with the deceased, such as student loan. Some private student leaders will forgive the loan, but most won’t.

• You have to pay the doctor. Final medical bills are usually considered a spouse’s responsibility. If your mate entered a hospital, the admission papers you signed probably included a payment agreement. When there is no money, however, and the survivor has very little income, heath providers might write off the account.
• Get tough. Don’t be talked into making a few payments on bills you do not owe. Creditors might claim that you willingly assumed the debt. Tell them, “No, No, Never.” You know your rights.

As I have stated before in different articles, it’s best to not have any long-term debts. If and whatever debts you have, it should be taken care of as soon as possible so that debt does not become a burden on your family. With proper planning it’s not a difficult task. Many times, some of us just buy items or spend money for other items.

This article is written in collaboration with Walt Hommerding senior vice president investment of Wells Fargo .

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)