DISCLAIMER. The information provided in this article does not, and is not intended to be, legal, financial or credit advice; instead, it is for general informational purposes only.
Losing a loved one is hard on so many levels. Funeral arrangements and estate matters have to be dealt with in the midst of grief—and questions abound. What debts are forgiven at death, for instance? Can your family members’ creditors come after you now?
Technically, personal debts aren’t forgiven at death. Instead, they pass to the estate of the deceased person. We’ll explore what that means in practice in this post—and we’ll answer a few other questions along the way. The laws and rules can vary greatly from state to state, it is important to consult an attorney to help you navigate the process of how to handle the debts of a loved one after they have passed.
What Happens to Debt When You Die?
Personal debts created by the borrower themselves with no cosigning parties usually pass straight to the estate—unless the decedent was married and lived in a community property state. (We’ll cover what happens to debt in community property states a little later.)
Jointly held debts are a little different. Several different types of joint debt pass straight to cosigners without going through probate. Let’s take a closer look at five different types of debt to see what might occur after the primary borrower passes away.
Joint mortgages pass directly to co-borrowers, who become responsible for the loan. Mortgages held by one borrower—i.e., the decedent—pass to listed beneficiaries, who then become responsible for the loan. If beneficiaries can’t or won’t assume the loan, they can sell the property to settle the debt instead.
If your loved one doesn’t have any beneficiaries listed on their will when they die, their mortgaged property may go into foreclosure. At that point, their bank will sell the property to recover the mortgage debt.
Car Loan Debt
Car loans held in joint names generally pass straight to the other borrower. If there is no cosigner and the estate is able to pay off the existing car loan, it will do so and then pass the car to the listed heir. If the estate cannot pay off the loan, the person who inherits the car can sell it to cover the debt. If you qualify for a car loan or you can pay their loan off in full, on the other hand, you can keep the vehicle. If no one is able to pay off the loan, the lender may repossess it.
Credit Card Debt
Joint credit card debt passes straight to the other borrower. Credit cards with authorized users on them are different, however—unlike cosigners, authorized users aren’t responsible for debts.
If your family member passes away with outstanding credit card debt, the lender may try to recover the debt from their estate. If there isn’t enough money left in the estate to cover those revolving debts, they’re usually simply written off.
Student Loan Debt
Federal student loans and PLUS loans get discharged if borrowers pass away. Private student loans behave much like any other type of personal loan—if cosigners are involved, they’ll be liable for the debt. If there are no cosigners, student loan debt must be paid by the decedent’s estate—sometimes immediately.
Medical debt can be more difficult to understand than other types of debt. If your family member died with medical debt, you may want to speak with a lawyer to understand what you are responsible for. For example, under a legal rule called the Doctrine of Necessities, in some areas, you may be responsible for your spouse’s medical debts if they are considered “necessary” expenses. This is true even if the bills are only in your spouse’s name and you did not sign for them. Another exception would be in the case of a child—the child’s parents would remain responsible for the medical debt.
Many small medical debts are discharged when patients die. Larger medical debts, like other substantial debts, may become the responsibility of the deceased person’s estate.
9 Things to Know About Debt After Death
Assuming an estate is available to pay your loved one’s debts, here are ten things to know about debt after death.
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1. The Executor of the Estate Deals with the Debt
After your loved one passes away, direct any debt-related correspondence to the executor of their estate. As soon as the person dies, their estate is born—and along with it, an estate executor. Some people name executors before they pass away, but in other circumstances, executors are appointed by the courts.
Executors handle all financial issues relating to the deceased person’s estate, including debt payments. If you receive any unexpected mail from your loved one’s creditors, let the executor know right away.
2. Notify Creditors and Credit Bureaus
Creditors and credit bureaus need to know about your loved one’s death as soon as possible. This is another job for the executor of the estate. Here’s what the executor needs to do:
- Notify all three credit bureaus—Equifax, Experian, and TransUnion—about the death, and ask that they place a “Deceased: Do not issue credit” notice on the person’s file to prevent identity theft.
- Obtain a copy of the deceased person’s credit report to see what type of obligations they had.
- Contact all the deceased person’s creditors to let them know that the individual has died.
- Contact the Social Security Administration to make sure they note the person’s death.
- Send copies of the deceased person’s death certificate to all three credit bureaus at the following addresses via certified mail:
P.O. Box 2000
Chester, PA 19022
P.O. Box 2002
Allen, TX 75013
P.O. Box 740260
Atlanta, GA 30374
3. Find Out Who’s Responsible
Before proceeding any further, make sure cosigners and joint borrowers are aware of your loved one’s death. Remember—responsibility for mortgages, credit cards, student loans, and other joint debts automatically pass to the surviving account holder. Joint responsibility doesn’t apply to additional cardholders or authorized users.
4. Stop Using Credit Accounts
Additional cardholders and authorized users must not charge anything new to the decedent’s accounts. Continuing to use cards associated with the deceased person after being informed of the person’s death could be considered fraud. At this stage, authorized users should apply for their own cards.
5. Keep the Estate Intact
Don’t distribute valuable possessions like jewelry and antiques yet. Settle debts first, and share any remaining physical assets afterwards. If you do distribute assets before sorting out debts, beneficiaries may end up being liable for those debts by proxy.
6. Negotiate with Creditors
If you’re a surviving partner and you’re having trouble paying joint debts after your spouse’s death, speak to your creditors. Many lenders are sympathetic and will work with you to ensure your credit stays intact. Explain your situation and tell them about any outstanding financial obligations and about any incoming life insurance money.
7. Be Aware of Community Property States
In most states, surviving partners are not liable for their spouses’ personal debts. In community property states—Alaska (optional), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin—however, they are. Surviving spouses in these states are responsible for their deceased partners’ debts, including any debts they didn’t know about.
The community property stipulation only extends to debt accrued during the marriage. Debts accrued before the marriage are not community property debts. If you live in a community property state and need advice, contact a reputable probate attorney.
8. What Happens If There’s No Estate?
So, what happens to your debt if you die with no estate—or if your estate isn’t large enough to pay for it all? In short, the debt is written off. Without an estate to pay for it, it’s considered unrecoverable and is forgiven.
9. If in Doubt, Contact an Attorney
We strive to provide information that’s accurate, but we’re not lawyers. If you’re confused and need advice, don’t hesitate to get in touch with a well-regarded consumer law or probate attorney. They’re not always cheap, but the service they provide can be priceless.
Preparing for Debts after Death
There are a couple of things you can do to make sure your outstanding debts are repaid quickly and efficiently after you pass away. First, create a clear legal will and name an executor. Then, consider bundling numerous small debts into one consolidation loan. Finally, think about buying a life insurance policy to cover any outstanding debts. All of these things can help make life easier for loved ones.
If you’re not sure how much you owe, sign up for ExtraCredit from Credit.com. The credit snapshot you receive can help you add up your financial obligations well before they become a burden.
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