What Happens to Debt When You Die?

What happens to debt when you dieIn a society like ours, where debt has become widespread, it’s unfortunately necessary to answer this question: What happens to debt when you die?

There are many cases when someone must face this question, and while none of these situations are pleasant, it’s better to be informed than not. It’s no longer uncommon for parents to die indebted, with more debt than assets. And couples often start partnered life with debt, meaning the death of a partner can raise complications for their loved one in addition to coping with grief and loss. Whether it’s student loans, medical debt, mortgages, or credit card debt, it’s important to know what the law says.

Can I Inherit Debt from My Parents?

The good news is that you can’t inherit debt that isn’t yours. However, if you have a joint account with your deceased parent, which you have co-signed for, then you become responsible for that debt. So for example, if you signed for a credit card jointly with your mom, and she dies, you are on the account, and you have agreed to take responsibility for that debt.

If you aren’t on the account, though, you don’t inherit the debt. Instead, the debt is paid off with assets from the estate. In cases where there are unpaid debts when your parents die, the executor of the will sells any assets, and the proceeds are used to pay off debts. Secured debts (mortgage, car) are discharged first, and unsecured debts, like credit cards, are tackled next.

When the money runs out, some creditors might have to take the loss. You don’t inherit debt that you don’t jointly own, but it might significantly reduce what you actually end up with in terms of an inheritance.

What Happens to Credit Card Debt When You Die?

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Really, it depends on who has signed for it. Joint debt becomes the responsibility of the surviving account owner. However, if you are the sole account owner, your estate is responsible for the debt. Credit card issuers do have to notify executors quickly of how much is owed, and they can’t keep adding fees and penalties during the time the estate is settled.

One exception to be aware of is that in community property states, the rule that a single account owner is solely responsible for the debt gets a little murky. In those states, the account may still be considered joint, even if you are the only name on it. Check your state law to determine what happens.

Another thing to keep in mind is that “authorized users” who aren’t joint account holders are not responsible for the debt. So don’t let an issuer bully you into taking responsibility.

What Happens to Student Loan Debt When You Die?

With private student loans, the situation depends on whether or not there was a co-signer. Co-signers are usually responsible for any debt after the loan holder dies. However, federal student loans come with a little more leniency: the debt is discharged, and the estate doesn’t have to repay the loans.

What Happens to Medical Debt When You Die?

Once again, it’s all about who has signed for the debt. However, there are differences, state-to-state, about what happens to medical debt. If the debt is joint medical debt, the survivor becomes responsible in many cases. If the debt isn’t joint (except in community property states) it reverts to the estate to be covered by any assets. In some cases, some medical facilities might choose to negotiate with you to reduce the debt, so it’s always good to inquire about this.

What Happens to Mortgage Debt When You Die?

As always, the answer to this question depends on who has taken on the debt. If it is shared debt, or co-signed debt, the survivor is responsible. If only the deceased is on the loan, the mortgage debt is settled by the estate. Because a mortgage is secured debt, it usually gets first billing for pay off when the estate is settled.

Bottom Line

No one wants to face a situation where they have to deal with losing someone they care about. It’s only made worse if debt is involved. Hopefully, having information can help in some cases to make the situation a bit easier. Just remember that what happens to debt after you die depends on who has signed for it, as well as the laws in your individual state. It’s always a good idea to talk to an estate attorney and get an expert opinion regarding your specific situation.

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  • “However, if you have a joint account with your deceased parent, you become responsible for that debt.”

    That’s simply not true. The funds in that joint account certainly may fall into the deceased’ estate and may be used to satisfy the debt. However, you won’t be responsible for the debt by the virtue of being on the account.

    • Perhaps I should have been clearer. The joint account I was referring to was a debt account for which you have co-signed for. Such as the joint credit card account example used in the following sentence. If you have signed for the debt, guaranteeing it, you are responsible for continuing to make the payments.

    • Thanks for pointing this out, Jeena, and thanks for clarying, Miranda. I have updated the post to reflect what you both said, so hopefully it is accurate now. If not, let me know and I’ll update again.

  • Lee O

    I received a medical bill for my grandmother, two years after the service and 18 months after her death. Isn’t there a time limit on bill collecting? The estate and checking account have been closed for well over a year.

    • Hi Lee, I think debts usually cannot be passed onto a family member. So I’m assuming if the estate has been closed that means there is no more money in the estate which means the creditors will have to acknowledge that the debt will not be paid. But I’d recommend researching this thoroughly to make sure. Here’s one article that might help:

  • Tom

    My father died about 3 years ago. I received a letter from Experion stating that there was something suspicious recently on his credit. I tried to get a copy of his credit report but they are demanding documents I am unable to produce. What should I do?

  • Josephine

    I lost