How To Protect Yourself From Your Parent’s Debt. Every creditor would go the extra mile to see their money acquired, even aggressively, if need be. How, then, do you protect yourself from your parent’s debts if they have such creditors who want their money at all costs?
Your take-home income may not be enough to offset the debt your parents left behind. But there are moral and legal ways to protect yourself from your parent’s debt with no side effects.
Also Read: Can Loans Be Written Off?
Read on to see, through practical steps, how you can shield yourself from your parent’s debt before their creditors come seeking their money in no time.
Do You Think It’s Wrong For You To Inherit Your Parent’s Debts?
Imagine being held responsible by paying for what you didn’t bargain for later in the future–your parent’s debt. Although you wish the debts could just dissolve into thin air even as the debt holders –your parents might have passed on.
And now, you are asking, is my parent’s debt transferable to me? Alright, here is the honest truth–they shouldn’t be transferable to you by default unless willfully.
That is to say; you can inherit your parent’s debts based on a few exceptions. According to the Consumer Financial Protection Bureau, here is what you need to know about transferring debts, even your parents’ debt when they die or are incapacitated at any time:
- When you have a joint account with your parents on any loan–a house loan, for example.
- If you co-sign, let’s say, a credit card bill with your parents.
So, knowing that your parent’s debts can be transferred to you upon the above exemptions is essential. Nevertheless, you can still protect yourself–that is, not paying their outstanding debt with your money. How?
- Use their estate funds to clear off their debts, especially when you have the estate’s financial power of attorney(POA).
2. Or when the estate is not financially fit or insolvent to clear its debts, you can liquidate (selling business assets) the estate to cater for its debts.
What Do You Know About Your Parents’ Debts?
Do you know that the pressures from your parent’s creditors can make you pay for the debt you should not pay for? You may end up paying for it because you didn’t know the debt your parent’s got into.
Hence, the first step to Protect Yourself From Your Parent’s Debt is to know the kind of debt they left behind. Find out whether it is a secured debt like mortgage debt or unsecured debt like credit card debt.
1. Secured or Fully Recognized Debts
As previously stated, if you want to protect yourself from your parent’s debt, first distinguish between which debt is secured and which is not.
What’s the difference, then? A secured debt, by law, requires collateral before it can be taken. In contrast, unsecured debt doesn’t require any collateral from the onset.
A perfect example of a secured debt is a mortgage loan plan, car loan, tax filing bills, etc.
The next thing to find out about secured debts is this: were you co-signed as debtor, too, or did your parents jointly include you as debt-payer of their community property in the future?
In determining the above criteria for secured debt:
- It helps you to arrange, according to state law, debt repayment priorities– that is, which debt to pay first and which to write to creditors for debt forgiveness due to insolvency of the estate(s).
- Avoid the disturbance of creditors here and then for debt repayment.
- Call for legal help, either requesting the service of an attorney or non-profit debt protection services during the debt repayment process.
2. Unsecured or not-Recognized Debts
This is what unsecured debts look like:
- A monthly grocery bill accrued by your parents.
- Annual subscription plans.
- Medical bills of your parents—Medicaid inclusive.
- Student loans.
- Family loans, etc.
Unsecured bills are barely daily credit card transaction bills and loans that require no collateral.
So, prior knowledge of these categories of debts–secured and unsecured- will enable you to decide which to clear first and which is to be written off during the insolvency of your parent’s estate.
Practical Steps To Protect Yourself From Your Parent’s Debts
Protecting yourself from your parents’ debt is easy and doesn’t require you to fret. But then, a way of making it much more manageable without hitches or side effects when protecting yourself from your parents’ debts that were passed on to you requires you to know the following:
- Find out whether there is a transfer of their debt to you through consignment or joint account statement.
- What kind or category of debts did they get into during their lifetime?
- And then distinguishing amongst their debt, secured or unsecured debts.
With all the above in place, follow the below practical steps, a legally and morally acceptable format that you can apply to protect yourself from your parent’s debts.
- Upon the mental breakdown of your parents or demise anytime, contact either of the three major credit bureaus—Equifax, Experian, and TransUnion- with your parents’ details.
Notifying any of these credit bureaus will, in time, save you from accumulating more debts to pay, as they will halt any credit card transactions, provided you have the financial power of attorney of their estate. Otherwise, seek professional guardianship.
- Do well to write to your parent’s creditors to bring to their notice the current state of their debt holder–incapacitation or demise.
An advantage of this notice is that it could lower the debt repayment to what their estate can afford. And luckily, they could also forfeit those debts as a way to express their condolences or sympathy. But failure to notify them could breed aggressive questioning or interviews for debt repayment.
- Write or contact your zone’s consumer credit counseling service(CCCS)
They will assist you with debt repayment advice, budgeting tips, and negotiation formats with your parents’ creditors.
- Repay debt using your parent’s left behind estate(s)
Paying the debts, your parents left behind requires you to use your parent’s estate funds to attend to those debts. This can be done when you have the financial power of attorney of the estate. Otherwise, seek guardianship.
But in a situation where the estate is insolvent, and you are mandated by the court to pay according to debt priorities, then liquidating the estate assets would be a remedy. Note: It is best to hire an attorney or professional for the liquidation process, as there is a legal approach during liquidation.
There may be no asset left that can be used to offset your parent’s debt, so a way of protecting yourself from their debt is to write to their creditors seeking debt forgiveness.
Conclusion – How To Protect Yourself From Your Parent’s Debt
No one, not even yourself, would want to inherit a huge debt left behind by your parent due to either demise or incapacitation. But thank goodness there is a way out to protect yourself from your parent’s debt
The rescue mission you must embark on begins with a few findings about the debts. The results will enable you to protect yourself from their debt following the ethical and legal practical approach listed in this article.
This article provides how to protect yourself from your parent’s debt, as your take-home income may not afford to offset all their debt when their creditors come knocking on your door day and night.