What Happens to Debt When You Die?

Losing a loved one is never easy and surviving family members are often left with the logistics of planning a funeral, cleaning out a home, and writing an obituary. It’s also possible for someone to die with debt — which poses the question, “Can you inherit debt?” Knowing what debts are forgiven at death and which must be repaid by surviving family members can make this time of transition a little easier.

In most cases, debt isn’t inherited and is often settled by the estate or forgiven. However, there are a few exceptions when surviving family members may be left with debt. Let’s discuss what happens if someone dies with debt and how to help protect loved ones from debt collection.

How debt is handled when you die

Most debt isn’t inherited by someone else — instead, it passes to the estate.¹ During probate, the executor of the estate typically pays off debts using the estate’s assets first, and then they distribute leftover funds according to the deceased’s will. However, some states may require that survivors be paid first.¹ Generally, the only debts forgiven at death are federal student loans.²

Solvent vs. insolvent estate

If the estate has enough money to cover all debts and more, it’s considered solvent. But if it doesn’t have enough, it’s considered insolvent.³

If the estate is insolvent, creditors may forgive debts the estate can’t cover. If the estate is solvent, any money or property remaining after debts are distributed among beneficiaries.

While it can vary by state, most debts are settled in the following order when an estate is insolvent:⁴

Estate taxes and legal fees
Funeral and burial expenses
Outstanding federal taxes
Outstanding medical debt
Outstanding property taxes
Outstanding personal debt (credit card debt and personal loans)

With secured debts — like a mortgage or car loan — a lender may repossess the asset, or a surviving family member may be able to assume the debt through refinancing.⁴

Debt collection law

Debt collectors are held to the Fair Debt Collection Practices Act (FDCPA) and can’t harass surviving family members to pay debts they don’t owe. Instead, collectors have a designated amount of time to make a claim against the estate. After this time, creditors forfeit their right to repayment.⁵

Debt that may be inherited

So, do you inherit your parents’ debt? How about your spouse’s or child’s? It depends on the type of debt, what state you’re in, and whether the estate can cover it. There are still a few kinds of debt that may be inherited. These are generally shared debts, like co-signed loans, joint financial accounts, and spousal or parent debt in a community property state.⁴

Property debt

If you inherit a house, car, or other type of property, you’re now responsible for all the debts that come with it. This could include a home equity loan, car loan, or mortgage.⁴

Debt from your parents

There are two types of debt you could inherit from your parents: loans you co-signed for them and medical debt (in certain states).³

Over half of U.S. states have filial responsibility laws, which say adult children may be responsible for their parents’ care expenses if they can’t support themselves. If your parents’ estate was insolvent and couldn’t cover all of their medical bills, you may be liable.³

Debt from your spouse

There are two kinds of debt that a surviving spouse may be responsible for: joint debt and community property debt.¹

Joint debt, which the surviving spouse is now responsible for, could be a joint credit card, mortgage, or car payment. However, if you’re an authorized user of a credit card, not a joint owner, you aren’t responsible for debt repayment.¹

If you live in a community property state and didn’t sign a prenuptial agreement, you may also be responsible for any debt your spouse took on during the marriage. Community property states include:⁴

Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin

Debt from your child

Co-signed loans are generally the only kind of debt parents may be left with when a child dies. These may include student loans, car loans, or other personal loans. If the child was the primary borrower and they pass away, the co-signing parent may be required to repay the loan.

Assets that may be safe from debt collectors

Some assets are exempt from the probate process and are automatically distributed to beneficiaries when someone passes away. Life insurance policies and retirement accounts — e.g., 401(k) or Roth IRA accounts — can’t be claimed to pay off debts.⁴ Living trusts are another way to protect assets from being claimed to repay debt after death, since they usually skip the probate process.

Protect your loved ones

Having an estate plan can help keep your loved ones from encountering financial hardships after your death. There are a number of online resources that can help you begin the process. However, it’s a good idea to consult an estate planning attorney to ensure you understand and are in compliance with the inheritance laws in your state.

FAQs

What Happens to Debt When You Die? | MetLife? ›

During probate, the executor of the estate typically pays off debts using the estate's assets first, and then they distribute leftover funds according to the deceased's will. However, some states may require that survivors be paid first. Generally, the only debts forgiven at death are federal student loans.

Read On ›

What debts are forgiven at death? ›

Upon your death, unsecured debts such as credit card debt, personal loans and medical debt are typically discharged or covered by the estate. They don't pass to surviving family members. Federal student loans and most Parent PLUS loans are also discharged upon the borrower's death.

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Is family responsible for deceased debt? ›

If there's no money in their estate, the debts will usually go unpaid. For survivors of deceased loved ones, including spouses, you're not responsible for their debts unless you shared legal responsibility for repaying as a co-signer, a joint account holder, or if you fall within another exception.

Keep Reading ›

Will I inherit my parents' debt? ›

If a parent dies, their debt doesn't necessarily transfer to their surviving spouse or children. The person's estate—the property they owned—is responsible for their remaining debt.

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Am I responsible for my parents' debt? ›

The quick and easy answer is, no, you are generally not responsible for the debts of your loved one who passed away. There are exceptions however, and it is important that you take the next steps properly after someone passes to ensure that you are not liable for any debts they may have.

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Is credit card debt forgiven at death? ›

Credit card debt doesn't follow you to the grave. Rather, after death, it lives on and is either paid off through estate assets or becomes the responsibility of a joint account holder or cosigner.

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What is the only debt that Cannot be forgiven? ›

Loans, medical debt and credit card debt are generally all able to be discharged through bankruptcy. Tax debt, alimony, spousal or child support and student loans are all typically ineligible for discharge.

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Do I inherit my mom's debt if she died? ›

It may come as a relief to find out that, in general, you are not personally liable for your parents' debt. If they pass away with debt, it is repaid out of their estate. However, this means that debt repayment could diminish or eliminate assets and property you could have inherited from your parents.

Do I have to pay my deceased mother's credit card debt? ›

It's important to remember that credit card debt does not automatically go away when someone dies. It must be paid by the estate or the co-signers on the account.

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Can debt collectors go after family? ›

A debt collector can contact your spouse. A debt collector can contact your parents or guardian if you are under 18 years old or live with them. A debt collector can also contact your attorney and, if otherwise allowed by law, credit reporting companies (Equifax, Experian, and TransUnion) about your debt.

Do I have to pay deceased parents bills? ›

Usually, children or relatives will not have to pay a deceased person's debts out of their own money. While there are plenty of exceptions, common types of debt do not automatically transfer to heirs when someone dies.

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What kind of debt is inheritable? ›

There are two types of debt you could inherit from your parents: loans you co-signed for them and medical debt (in certain states). Over half of U.S. states have filial responsibility laws, which say adult children may be responsible for their parents' care expenses if they can't support themselves.

Get More Info Here ›

Can creditors go after beneficiaries? ›

When a person dies, creditors can hold their estate and/or trust responsible for paying their outstanding debts. Similarly, creditors may be able to collect payment for the outstanding debts of beneficiaries from the distributions they receive from the trustee or executor/administrator.

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Can you be forced to pay your parents' debt? ›

A creditor cannot go after a child to collect on a parent's debt if there is no contractual agreement between the child and their parents' creditors. However, a child may be personally liable if: They cosigned or agreed to be a guarantor on a parent's debt. They held a joint credit card with the deceased parent.

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How do credit card companies know when someone dies? ›

However, once the three nationwide credit bureaus — Equifax, Experian and TransUnion — are notified someone has died, their credit reports are sealed and a death notice is placed on them. That notification can happen one of two ways — from the executor of the person's estate or from the Social Security Administration.