If there is one thing that’s certain in the universe, it’s that we’ll all try to eat hot food while it’s still too hot. Another thing that’s almost just as certain is that many of us will all have debt at some point in our lives, for better or for worse. It’s worth answering then what happens to various kinds of debt when we die, especially with the coronavirus and insurance of varying kinds impacting that.

Below, we go over some of the main points that are important to know how debt works in Canada post-mortem.

Coronavirus and Insurance: What Happens to Debt When You Pass Away in Canada?

Good news! You generally don’t inherit the debt of your parents, partner, or children upon their passing. As an added bonus, your debts will also typically not be passed onto someone else either.

That doesn’t mean that debt is without consequences though. Creditors may make claims on the estate of the person who died if they have evidence they are owed money. This could impact any inheritance that would be paid out since debts would need to be paid off first. Once debts are paid off, the inheritance can then be received by beneficiaries.

There are also a few exceptions to inheriting debt. For example, debts or money owed through joint and co-signed accounts will become your responsibility if the other co-signer happens to pass away.

Essentially, if you had to deal with the debt when the person in question was alive and kicking, you will remain responsible for it when they’re gone.

What Happens to Your Credit Card Debt When You Die in Canada?

Like most kinds of debt, you don’t need to worry about paying for someone else’s credit card debt when they pass.

However, this doesn’t mean the debt simply vanishes. Instead, the deceased’s estate is used to pay off any remained amount owed.

The only case when you would have to pay back credit card debt yourself is if you signed up together with someone for a joint credit card and they passed on with debt still on the card.

How Wills Are Affected by Debt

Thankfully, someone cannot bequeath debt to you. However, debt will still interact with a person’s will, if indirectly. Since a will distributes assets, not debt, you can still receive the assets of your loved one.

However, these assets can only be claimed if the respective debt over them is paid off. Once this has been done, the remaining assets can be claimed by the respective heirs.

Tips to Avoid Debt You Can Inherit

The last thing you want to leave your loved ones with is additional financial stress, so to avoid any debts you can inherit follow these tips:

• Don’t co-sign or take on joint debt. As we mentioned previously, even if one of you passes on, the other is still responsible for this kind of debt. If joint debt is unavoidable, or still is necessary, sign up for life insurance than can cover both of you so you can deal with it accordingly.
• Don’t fall prey to debt collectors. Some malevolent collection agencies may try to claim you’re responsible for your loved one’s debt. This simply isn’t true unless you’re responsible for the aforementioned joint debt. Get clarity on your rights so you know when you would actually be responsible for paying them.
• Ensure your estate is distributed accordingly. Although it’s might make you squirm a little, creating a will to determine who your assets will go to prevents any additional expenses or taxes from letting the province decide (if you didn’t have a will).
• Sign up for life insurance. If you know you’ll be leaving some kind of debt when you pass away, the best way to help your loved ones be prepared is with life insurance. They will be appropriately financially covered and won’t need to deal with another layer of stress.

Thankfully, in most cases, debt remains with the deceased in Canada. Life insurance is one of the best ways to help the people you care about be prepared, and, by avoiding joint-debt whenever possible, you can ensure you’re minimizing the maximum amount of financial stress possible.

Need help finding out what kind of life insurance is right for you? Get in touch with us today!