Unfortunately, a person’s debt doesn’t magically disappear when they die. Instead, the deceased’s debts are often settled by the assets in their estate. Often these assets will cover all the debts and the remainder of the estate will be distributed among the inheritors. In some cases, however, heirs will inherit debt as well as, or instead of, wealth.
Losing a loved one is always difficult. Not only is there a hole in your heart that they once filled, but there’s also the stress of planning and paying for a funeral and handling the deceased’s estate. Sadly, some loved ones leave more behind than a will and memories.
If a deceased person still had debt, they could leave behind a financial mess for someone else to clean up. But that doesn’t have to be the case. With some careful planning and research, it’s possible to mitigate the financial tangles that often exacerbate the trauma of a death in the family. Keep reading to learn more about what debt can be inherited, what happens to your assets without a will, and how to best ensure your family is taken care of.
What happens to debt when you die?
When someone passes away, their estate — which includes everything they own at the time of death — goes into probate. Probate is where the executor of the estate goes through the process of paying off debts and distributing whatever remains. The executor is the person designated by the deceased in their will to oversee the estate and follow their wishes after death. This may be a spouse or close family member, such as a sibling or adult child.
No, debt doesn’t disappear when you die. In most cases, all debt will be paid through the deceased’s estate’s assets. The executor might simply have to cut checks from a bank account to pay the debts. If the debts are considerable, they may need to sell off some assets to settle the accounts.
In some cases, the estate doesn’t have enough money to cover all the accounts (the debts outweigh the assets), and those unsecured debts may never get paid.
Who can inherit your debt?
The people who could inherit your debt when you die are usually the same people who would inherit your wealth, if you have any. Though most debts can be paid with the remaining assets, sometimes the deceased’s debt equals more than the assets.
While family members are typically not legally responsible for your debt, there are exceptions. Those who might inherit some of your debt are:
- Cosigners of loans
- The surviving spouse
- Joint account holders or joint owners
- Occasionally adult children of the deceased
Additionally, if someone were the executor of the estate and knowingly failed to follow state probate laws, they could also be responsible for some of that debt.
What if there’s no will?
It’s a bit trickier if the deceased doesn’t have a will, but it happens all the time. If there isn’t a will, then no executor is designated. In that case, the courts may appoint a personal representative, or administrator, to settle the estate.
How to decide who takes on that responsibility varies by state, but a sibling, spouse, parent, or adult child often takes this responsibility. The courts will typically take into account the family’s wishes when appointing the appropriate person for the job.
Types of inherited debt
There are two types of debt — unsecured and secured debt. Secured debt, like a car loan, means the loan is backed by an asset such as a house or car.
Unsecured means that there is no asset behind the loan, such as federal or private student loans and credit card debt. Let’s further explore the types of debt and what happens to each when you die.
Mortgages and home equity loans
If you own real estate with a remaining balance, that debt will pass on after you die. That includes any home equity loan debt as well. If no one else lives there, the house will usually be sold, the mortgage paid off, and any leftover goes back into the estate.
However, if someone else (like the surviving spouse and children) does live there, the house may not be sold and the spouse (or co-owner or inheritor) usually has the option to keep the house and take over the mortgage payments. The inheritor can also choose to sell the house to settle that debt. In either case, if the house isn’t sold, the bank or lender can foreclose on the property if no one makes the monthly payments.
In the case of smaller assets such as motorcycle, boat, or car loans, the debts are treated much the same as real estate mortgages. An inheritor or co-owner can choose to hold onto the asset and take over the car payments or sell it to repay the debt.
Credit cards are unsecured debts. This means if there isn’t enough money left in the estate, the credit card company might be out of luck in recovering that money.
One exception is if an account is co-owned by another party, like the deceased person’s spouse. If that’s the case, the joint account holder is responsible for the total remaining debt. And, if you live in a community property state, the surviving spouse must take on that debt. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Student loan debt
Student loans are another example of unsecured debts that may go unpaid if the estate runs out of assets or money to settle that debt. If you had only federal student loans, the federal government will discharge (cancel) those debts and no one has to pay them.
Private student loans, on the other hand, usually have to be paid back. And in community property states, the deceased’s spouse will typically be responsible for that debt if it was incurred during the marriage.
Medical bills are also categorized as unsecured debt and often go unpaid when a person dies and the estate’s assets aren’t enough to cover all debts.
In many states, though, there are “filial responsibility laws,” which state that adult children must care for aging parents who can’t take care of themselves physically or financially. This includes after death, meaning creditors could come after you for unpaid medical debt or costs of long-term care facilities. Even though these laws are rarely enforced, it’s something to be aware of.
States with some type of filial responsibility laws include Alaska, Arkansas (for mental health services), California, Connecticut, Delaware, Georgia, Indiana, Kentucky, Louisiana, Massachusetts, Mississippi, Montana, Nevada (if there is a written agreement to pay for the parent’s care), New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, and West Virginia.
Can debt collectors harass your family?
While creditors or others who collect debts are not legally allowed to use deceptive or unfair practices to settle accounts, that doesn’t mean they won’t try. It’s important to be aware of your rights to avoid falling for shady tactics.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA), enacted by the Federal Trade Commission (FTC), protects consumers from unfair practices by creditors.
For example, while creditors can contact those legally responsible for your debt, they can’t get ahold of Aunt Franny and try to get her to pay up. They can call her to ask for the name, address, or phone number of the executor, but that’s about it. They are not allowed to discuss any detail of the debts or ask for payment.
Can debt collectors harass the executor?
As the administrator or executor, you can request (in writing) that a creditor stop contacting you. Keep in mind that doesn’t mean the debt goes away, it just means you won’t hear from them unless they decide to file a lawsuit or something of that nature.
If you’re concerned about creditors, you might want to contact a debt relief attorney or debt settlement company. They can walk you through exactly what creditors can do to collect on outstanding accounts. Depending on your income, you might qualify for free legal aid services in your area.
What can debt collectors take?
Your tangible assets, such as cars, houses, boats, and the like can be seized and sold off to pay your debts. However, there are several items that can’t be touched by debt collectors. These can include retirement accounts, life insurance benefits, and living trusts. Those assets are to go directly to the named beneficiary and aren’t included in the probate process.
If you’re unsure about what happens to your debts when you die, consult an attorney to walk you through the specifics of what a creditor can and can’t go after when collecting your debts.
How to protect your family members
The best way to ensure your family doesn’t owe money on your estate after your death is to get your affairs in order long before that happens. This includes taking care of outstanding debts and making sure you have life insurance. Obviously, you can’t often predict when you die, but it’s always best to plan as much as possible so others don’t have to be responsible for your debts.
Life insurance is one of the best ways to protect your family in the event of your untimely death. It’s especially important if you have dependent children. Basically, if there are people who count on your paycheck, you need life insurance.
Because the death benefit doesn’t have to go through the probate process, your family members can have access to that life insurance payout pretty quickly. Nobody wants to worry about how the electric bill will get paid while in the middle of grieving, and life insurance can provide the financial support your family needs.
Remember to keep your life insurance policy up to date. If the person you listed as your beneficiary died and you haven’t changed the name, that death benefit may be included in probate and used to pay the estate’s debt.
For example, if you took out life insurance when you were young, you may have a parent listed as the beneficiary. Ten years down the road, that parent is dead and you now have a husband and children. Make sure to update that policy so your loved ones can be protected.
You can further ease the burden on your grieving family by getting your estate in order. This involves inventorying your assets and debts and making up a will. It also means making some tough decisions, such as any desires you may have about your funeral or the disposition of your body.
You also might need to have some difficult conversations with family members about other details of your passing. This includes discussing who would be responsible for your dependent children if you and your spouse both die. All of this may feel uncomfortable and a bit morbid, but having your affairs in order can lift a huge burden from your mind.
What are community property states?
There are nine states in the U.S. that have community property laws. States with those laws include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
A community property state means that when a couple is married, any debt (or asset) accrued during the marriage is the responsibility of both parties.
Will I inherit my parents’ debt?
As discussed earlier, filial responsibility laws could say that you are responsible for a parent’s medical debt, but those laws are rarely enforced and may not even be applicable in your state. Other than that, you would only be legally responsible for their debt if you cosigned a loan or acted as a joint account holder. All other debt is not your problem.
What happens to credit card debt when someone dies?
If there is no joint account holder, and you don’t live in a community property state, credit card debt is paid solely from the deceased’s estate. If the estate runs out of money, the remaining balance on those credit cards will go unpaid.
Credit card companies do not consider an authorized user of the account, such as a student who carries a parent’s credit card for emergencies, a joint account holder. Because they are not a joint holder, they are not responsible for the debt.
Can you tell a debt collector you died?
You certainly can, but it’s illegal. More specifically, it’s fraud and you could go to jail. People have done it and gotten away with it, but we definitely don’t recommend it. Plus, a creditor will usually want to see proof of death, such as a death certificate, which is pretty tough to fake.
What happens to a house when the owner dies without a will?
If someone dies without a will, in most states the closest living relative will take on the responsibility of the entire estate. This includes the house and any other debts and assets of the deceased.
- Except in specific cases, family members are not legally responsible for the deceased’s debts.
- If you’re a co-signer, joint owner, or joint account holder, you are responsible for certain debts of a deceased person.
- Community property laws in some states require a spouse to pay debts that were incurred by the deceased spouse during the marriage.
- Debt collectors cannot harass random family members who are not in control of the deceased person’s estate. They can only get in touch to find contact information for the person who is responsible for the estate.
- Engaging in some estate planning, making up a will, and procuring a life insurance policy are some of the best ways to ensure your family is protected in the event of your death.
View Article Sources
- Debts and Deceased Relatives — Federal Trade Commission
- Discharge Due to Death — Federal Student Aid
- If There’s No Will, Who’s the Executor? — Nolo.com
- How To Negotiate A Debt Settlement – Pros and Cons — SuperMoney
- Best Debt Relief Companies | April 2022 — SuperMoney
- How Does a Reverse Mortgage Work When You Die? — SuperMoney
- What Should You Do if You Can’t Afford a Funeral? — SuperMoney
- Contingent Beneficiary vs. Primary Beneficiary: Definitions and Examples — SuperMoney
- Life Insurance Facts Companies Don’t Want You to Know — SuperMoney