The Haunting of Debt: What Happens to Your Debt When You Die?
Updated: 2021-11-01T03:36:00Z

 

Talking about our expiration date is a very taboo topic. We grew up believing that talking about death is a bad omen and can cause a curse to befall you or your loved ones.

 

The Haunting of Debt: What Happens to Your Debt When You Die
"autumn-cemetery-cross-death-fall" by Pexels is licensed under CC0

 



    This is the reason why only a few are prioritizing insurances and memorial plans. We tend to avoid this reality in the hopes to stave off the inevitable.

     

    Death is the last stop of all beings. Dreams, hopes, and regrets will meet their end, except for Debt.

     

     

    Does Debt Die with You?

     

    The answer is a Yes and a No.

     

    You can categorize debt into two:

     

    • Petty Debt
    • Legal Debt

     

    The above are just made up terms for simplicity.

     

    Petty Debt - Debts are on the smaller side. The debt contract is mostly verbal. An example is when you borrowed lunch money from your coworker and promised to pay next payday. This kind of debt will die with you.

     

    Legal Debt - Contracts are drafted and signed by both parties and are recognized officially by the law of the land. This kind of debt will outlive you.

     

     

    Can You Inherit Debt from Your Deceased Parents?

     

    • If the debt is categorized as a petty debt, then you won't inherit it.
    • If you cosign the debt or act as its guarantor, you will inherit it.
    • If it is a legal debt and you are not part of the contract. You won't inherit it.

     

     

    Are You Obligated to Pay the Debt of Your Parents?

     

    • The ideal answer should be no, but we Filipinos have this sense of compassion that we must help our family. For most of us, we consider this as an act of love.

     

     

    Are You Obligated to Pay the Debts of Your Spouse?

     

    • If the debt is before the marriage, then it is considered personal and is not the obligation of the surviving spouse.
    • If the debt is marital (conjugal), an example is a housing loan. The surviving spouse should pay the debt.

     

     

    How Do Creditors Get Payed?

     

    • If the borrower met its untimely demise but left some assets like properties, bank, and investment funds. The creditor will file a claim against the deceased's estate for the debt to be deducted. After that, the remaining estate will be distributed to the surviving heirs.
    • If the borrower left nothing, the creditors will write off the debt and consider it as a loss on their side. However, given that creditors do a thorough background check before approving a loan. It is unlikely that they will approve a loan knowing that you don't have any assets.

     

     

    Is There a Law about Debt Here in the Philippines?

     

    Philippine Civil Law - Chan Robles Virtual Law Library

     

    References and Case Studies

     

    Warning: Lengthy texts ahead.

     

     

     

    Takeaway

     

    As you remember the departed, you need to remember also to settle debt obligations while you are still alive and kicking. This will save your loved ones the added burden of having you leave them.

     

     

    Let us offer prayers for our departed loved ones this All Souls' Day.

     

     

    Quote

     

    "Let no debt remain outstanding except the continuing debt to love on another."
    Romans 13:8
     
     
     
    - Your Life In Perspective by ÆlfRæd (Elf Counsel)
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