Home > Managing Debt > Could I Inherit My Loved One’s Debt?

Comments 1 Comment

Losing a loved one is never easy, and it’s only made harder when you’re left wondering how to deal with the debt they left behind. Studies show that more people are entering retirement with debt, increasing the likelihood that they’ll be leaving some of it behind when they pass away. But will you, as their spouse or next-of-kin, be held responsible for their debt? Well…it depends.

What Happens to Debt After Death

When your loved one passes away, control of their assets or “estate” is passed on to their executor. The executor is tasked with managing the estate (money, property, etc.) and ensuring that all of the deceased’s debts have been paid off. Once the debts have been attended to, whatever’s left over is passed on to the beneficiaries named in their will.

That said, it is possible that your loved one’s estate might have enough funds to pay off the debts in full. In this scenario, the debts are ranked and subsequently paid for in order of priority. Whatever is left unpaid is then written off by the creditors, and that’s typically the end of it. However, there are a few situations in which the deceased’s debt could pass on to you.

Inheriting Debt

In the event that you were a joint account holder or co-signer on the deceased’s debt, then the responsibility to pay the money back will pass on to you. This is typically the case for unsecured debts such as credit cards, personal loans and student loans. Secured debts such as mortgages and auto loans will also pass on to co-signers, but it’s important to note that the federal government has made it illegal for lenders to accelerate loan balances, meaning they are not allowed to make the remaining balances due immediately following the borrower’s passing.

Debt could also pass on to you if the deceased was your spouse and you live in a community property state, (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin). In these states, debt taken on during a marriage can be considered community (or shared) property, even if it was strictly in your loved one’s name. You may want to consult legal counsel if this is the case where you live.

How to Avoid Debt Inheritance

If you’re concerned about inheriting your loved one’s debt, there are some preventative measures you can take to soften the blow. You may want to talk to your loved one about investing in some form of life insurance. This could help to cover the costs of their debts and might even help to pay off other expenses. Keep in mind however that age and medical conditions can make it harder to qualify for a policy, so it’s better to acquire insurance sooner rather than later.

Alternatively, you could encourage your loved one to adopt better financial habits. Things like building a budget and living a more frugal lifestyle can help them free up money to pay down their debts. The habits they pick up could also help them stay out of debt in the future.

Knowing when you are and aren’t responsible for debts left behind from a loved one can help keep you from being taken advantage of by unethical collection agencies. In the event that you find yourself receiving unwarranted calls from a debt collection agency after the death of a loved one, you may want to consider consulting with an attorney or writing a letter (via certified mail) to that agency stating that you no longer wish to be contacted. It’s always important to know your rights and to keep yourself protected.

Dealing with the passing of someone you care about is hard enough without the added burden of debt. However, knowing which debt you may or may not be held accountable for can help you and your loved one plan ahead. Get together and go over all accounts, and look at your credit reports together as well – you can get your credit reports for free every year from each of the three credit reporting agencies and you can get a free monthly credit report summary from Credit.com. If you’re worried about inheriting debt from a loved one, get familiar with everything that’s owed and discuss your options today.

More on Managing Debt:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Eddie J

    It may be appropriate to point out that you also need to understand credit card debt that a loved one may have left behind, particularly if you’re an “authorized user” on their credit card. If you are, understand that you are NOT liable for that debt. Authorized users are not joint account users and your credit was never checked and you never filled out an application. Some unscrupulous collection agencies may attempt to get you to pay but the law is on your side. Unfortunately, as an authorized user, the account IS listed on your credit report. Why that is, I have no idea since it is not your debt and only serves to negatively impact your credit score. Best to get yourself removed as an authorized user to avoid any hassles long BEFORE your loved one passes.Your loved one may have done this to help you build good credit. If you have already done so, have your loved one remove you or contact the credit card company and inform them that you no longer wish to be an authorized user on the card and they are suppose to remove you and remove the reference on your credit report.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team