Losing a loved one is never easy. But sometimes it can be a lot harder than it needs to be.

Death is accompanied by a number of financial pitfalls. We all accumulate financial responsibilities through our life. Who bears responsibility for your debts after your death?

More importantly, what can you do to make sure your loved ones don’t get caught holding the bag?

So where does it go?

The basic rule of thumb is that your debts die with you.

While relatives may feel a moral obligation for your debts once you have passed on, financial debts and responsibilities held in your name are extinguished upon your death. With only a few exceptions, heirs and loved ones are not responsible for a decedent’s debts.

If the person incurred the debt in his name alone, creditors are paid out of the estate through the probate process or they don’t collect at all. However, creditors can make a claim against your estate to recover money owed and can ever force the sale of your property to satisfy those debts.

Moreover, creditors have a right to recover any property which serves as security for your debt. For example, your credit card debt is unsecured and must be satisfied out of the general property in your estate.

However, if you have a mortgage or car loan, the creditor may recover the property which secured the debt. So while creditors cannot recover debts from your heirs, they can drastically reduce what is left in your estate to pass on to your heirs.

There are exceptions...

There are two exceptions to the general rule that your debts die with you.

If someone co-signed on the debt or guaranteed the debt, then he would still be liable for the remaining debt. When two individuals co-sign for a debt, the creditor has a right to go after either signer if the debt is outstanding.

Similarly, when a debt is guaranteed, the guarantor promises the lender payment if the debtor fails to fulfill his obligation.

The second exception is if your estate is probated in a community property state. The states having community property are Arizona, California, Idaho, Nevada, New Mexico, Texas and Wisconsin.

In community property states, all property acquired during the marriage, including debt is shared equally (50/50). Your spouse is responsible for 50 percent of debt that you incurred individually during the time of the marriage.

The court may mitigate the spouse’s obligation based on available assets and the spouse’s ability to pay.

How to ease the burden on loved ones

You can take steps to maximize what you leave to your heirs.

First, take time to speak to a qualified attorney who is familiar with the laws of your jurisdiction. He can speak to your specific needs and work out a strategy.

One way to ensure that there are assets to pass on is through the purchase of life insurance to be paid to a beneficiary at the time of your death. These assets are beyond the reach of creditors as long as the benefits are paid to an individual and not to the estate.

Depending on your financial situation, you may want to consider loan insurance which pays off specified debt in case of your death.

Most importantly, keep your family informed about your financial affairs and outstanding debts. Most people do not like to talk about money. However your family will be much better prepared to handle a difficult time if they know what is coming.