Why doesn't the US government erase the debts of people who die? Why do they still bill the...

Question:

Why doesn't the US government erase the debts of people who die?

Why do they still bill the deceased family for the debt?

Debt:

Debt is the amount of money that one party owes to another. It can be divided into secured and unsecured debt whereby for secured debt, the borrower provides collateral as security for the debt, while for unsecured debt, no collateral is provided. Debts offer an individual or institution the ability to purchase an asset that they could not be able to afford with their financial situation.

Answer and Explanation:

The government cannot erase the debt because if it did, it would be causing losses to the creditors, which is not right. People might also be tempted to take up vast amounts of loans when they realize they are nearing their death, causing considerable losses to the financial institutions.

The lenders would become extra careful when lending out money and might only lend out to young and healthy individuals to avoid the risk of not being repaid in case of debt. This would reduce the bank's lending, which would eventually affect the economic activity of the country. Additionally, people would not be motivated to repay their debts. They can, therefore, stall the debt and fail to repay, whereby upon their death, they would have benefited while the lender would have experienced a loss.


Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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