What Happens to Your Debt After You Die?

Debts don’t die easily. After you die, remaining debt could dip into assets meant for your heirs. In fact, your family may need to pay the rest of your debt for you.

Through will preparation, including creating a will and testament, you can express your wishes in advance on how your property should be distributed after you die.

When You Die, Do Your Debts Die Too?

After you die, your debts live on under the responsibility of your estate. Probate is the process of paying your bills and distributing what’s left.

The person designated in your will and testament as the executor (responsible for your will and estate after you die) will pay off debts with your assets. This may include writing checks or selling property.

If your assets do not cover your debt, creditors are out of luck. However, certain kinds of debt don’t just go away.

Mortgages and Home Equity Loans

With a mortgage, the value of the property protects the lender. Federal law prevents lenders from forcing joint owners to pay off a mortgage immediately following the death of a co-owner. This rule also applies to relatives who inherit the home. The co-owner or family member must take over the payments.

Home-equity loans are different. A lender can force the person who inherits the home to pay the loan immediately which may require selling the home. However, a lender may work with a new owner and allow them to take over the payments.

Credit Cards

After your estate runs out of assets, credit card companies are out of luck. Credit card debt isn’t secured by assets the same as car loans or mortgages.

Authorized credit card users are not responsible for an unpaid bill, but a joint account owner is responsible paying the debt. Spouses in community property states* must pay for credit card debt incurred during their marriage.

Student Loans

Student loans are also unsecured and do not need to be paid if the estate runs out of assets. Federal student loans terminate upon death.

Collection agencies may call relatives to discuss outstanding debts and try to find someone to pay them. But they cannot mislead families into thinking they’re responsible.

Car Loans

If a car loan is not paid, the lender can repossess the car. If someone inherits the vehicle, the lender could allow them to continue the payments.

When Spouses or Family Members May Be Responsible

In some circumstances, a spouse or family member may be responsible for your debts if they:
·         Are joint account holders
·         Co-signed for a loan
·         Are spouses in community property states* (spouses are not responsible for debts before their marriage)

Nearly 30 states enforce “filial responsibility” laws. This can make adult children responsible for debts pertaining to care for their parents, or parents responsible for debts pertaining to care for their children. While rarely enforced, there are some cases where creditors pursued families through these statutes.

What Creditors Can’t Touch

Creditors can’t come after your Life insurance proceeds or retirement accounts. This goes directly to your named beneficiaries. If your Life insurance beneficiary was not updated and they are no longer living, the benefit may go to your estate which is subject to creditors. Always keep your beneficiaries updated when life changes.

Are your will and testament ready? At FamilyWise, we specialize in professional online will preparation so your family and assets are always protected. Get started today.


*Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin

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