Car Loan Debt Stays With Owner Upon Death

Dear Debt Adviser,

I am getting ready to refinance my car and applied for a loan without my wife's income or our bank accounts. With this loan, the car would be in my name only. If they give me the loan, is my wife responsible for the car loan if I die? We don't live in a community property state.

-- Gary

Dear Gary,

Typically, most people don't refinance a car unless something big has happened. Interest rates have been really low for a few years now, so I'm betting the big change isn't in loan terms. It could be that you are getting into or out of a home equity type loan or your credit has improved to the point where your interest rates have dropped a bunch. Whatever the reason, I hope it's a positive one.

A loan in your name only in a noncommunity property state will be your financial responsibility and yours alone. Should you die before the loan is satisfied, the lender could not legally attempt to collect the debt from your wife. The lender might, however, be entitled to payment at your death through your estate. Also, the lender might want to take the car and sell it as you used the car to secure the loan. If the car loan is an unsecured personal or signature loan from your bank, then she and the car should be in the clear. Check with your state's bar association to learn more about the laws that apply to estates and probate, as the laws in your particular state would govern what recourse the lender would have to collect from your estate.

Because you seem concerned about your wife not having to deal with unwanted debt after your death, I hope you have written a last will and testament. It is much easier on surviving spouses and heirs if your wishes are included in a current and well-drafted will. Without a will, what happens to any assets you leave behind would be up to the laws of the state in which you live.

Not to dwell on your demise, but after a death, the person's creditors would be notified and sent a certified copy of the death certificate. It's also a good idea to send a copy of the death certificate to each of the three main credit bureaus to avoid any potential for identity theft. It's always a good idea to make a list of credit cards, bank accounts, passwords and safe deposit boxes (with keys) before you die, and leave it in a safe but accessible place. If you have any outstanding balances on a credit card when you pass away, the Credit CARD Act provides that the creditor must send notification of the amount due within 30 days of receiving news of the person's death. In addition, the law does not allow any additional fees to be added to the account after they have been notified.

Some creditors will contact surviving spouses or executor(s) in an attempt to get payment on a debt that is not the spouse's financial responsibility to pay. If you anticipate leaving a raft of unpaid bills and creditors, you may want to consider suggesting that your heirs hire an attorney experienced in probate matters. An attorney can take the pressure off a grieving spouse who would otherwise need to deal with your creditors. The creditor may not contact a person directly regarding a debt once they have been informed that an attorney is handling the matter.

Good luck!

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