Losing someone you love is never easy, and on top of the heartache, there’s often the overwhelming task of sorting through financial matters after they’re gone. One of the most common questions families may face is: What happens to the debt left behind? Here’s a look at common types of debt and how they’re typically handled after someone’s passing.
An estate is everything a person owns at the time of their death, including money, property, possessions and any debts they owe. If there is debt, it is typically paid from their estate before any assets are passed on to heirs or beneficiaries. For someone with life insurance, those payouts go directly to the named beneficiaries and are not considered part of the estate, unless the estate is specifically listed as the beneficiary.
While every situation is a little different, most debts follow some general rules based on the type of debt and how it was originally set up.
When a cardholder dies, their credit card debt doesn’t usually disappear. Any remaining balance(s) is paid out of the person’s estate. If the estate can’t cover the full amount, the remaining debt may go unpaid. Credit card companies generally can’t force relatives to pay the balance unless they are a co-signer or joint account holder.
If there’s a co-borrower or co-signer (like a spouse or partner) on the mortgage, they’re usually responsible for continuing the payments. If someone inherits the home, they may be able to take over the mortgage, refinance it or choose to sell the property. If the estate can’t afford the mortgage or no one wants the home, it may be sold to pay off the remaining loan.
Medical providers are usually paid from the estate when someone passes away. If the estate doesn’t have enough to cover the balance, the debt usually isn’t passed on to family members, unless someone legally agreed to be responsible. In some states, “filial responsibility” laws might apply, but how they’re enforced can vary.
Federal student loans are typically forgiven when the borrower passes away, requiring a death certificate to process. Private student loans may not be forgiven, and if there’s a co-signer, they may be responsible for paying the loan, or it will be handled through the estate if there’s no co-signer.
Source: Consumer Financial Protection Bureau, August 2023.
The information provided is for general informational purposes only and is not intended to serve as legal or tax advice. For guidance specific to your situation, please consult with a qualified legal or tax professional.
