More Debt Than Assets in the Death of a Spouse

When a spouse dies, it can be difficult to make financial decisions while you are still grieving the loss of a loved one. However if your spouse left a lot of debt behind, you will need to make difficult decisions about how to deal with the debt and whether or not you can afford to keep your home. A spouse does not necessarily become responsible for all of her spouse's debts.

Co-signer

Any debts that both spouses co-signed become the sole responsibility of the remaining spouse. If you feel that you will not be able to continue to make payments after the death of your spouse, you will need to contact your creditor and let them know the difficulties you are facing. Some creditors will be willing to work out new terms so they will be paid back the money. Other creditors will not.

Estate Pays for the Outstanding Debts

Any assets the spouse owned or co-owned will need to be sold and half of the value will be put into the estate of the deceased. This money will be used to pay off any debts that are remaining from the spouse. This will include the sale of the home, unless you can come up with the value of your spouse's half of the home to contribute to the estate instead. Often if there are more debts than assets, you are better off selling the home and using your half of the proceeds from the home. The creditor will forgive any debts left after the assets have been spent.

Executor Handles the Estate

The executor will handle the estate. This may or may not be the spouse. The executor will need to contact the creditors and inform them of the death. He will need to send a copy of the death certificate to the creditors, so they will not continue to call and harass the spouse. After the estate is settled, he will send a letter with the final payment amount, stating that the estate cannot pay off the remaining debt.

Life Insurance Money

Any life insurance money will go directly to the named beneficiaries. It is not part of the estate. This money does not need to be used to pay off any debts left behind. However if the spouse was a co-signer and receives life insurance money she may choose to pay off those debts with the money. Before paying off the home, you should consider whether or not you can afford to live there after you have settled the debts associated with it. If you cannot, you would be better to save the life insurance money for something else.