Debt After Death

Debt After Death

While it is very unfortunate, death is something we all have to deal with at some point in our lives. Whether it is a friend or a relative, it is always a very difficult situation to endure. Yes, it does often take ample time to mourn the loss of a loved one. However, eventually, you may have to deal with what happens to the finances and the estate of the deceased.

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What Happens to Debt After Death?

When a person dies, their assets become their estate. When a person creates their will, they also have to name an executor to take care of their finances after they’ve died.

Once you pass away, your debts become the responsibility of your estate, which is essentially everything you own at the time of your death. The executor will use your assets to pay off the debts that you have. This is often done simply by using the money you had saved at the time, or by selling off your belongings, for example, your car or home to get the money necessary. If there isn’t enough money in your estate to cover the debts, there is not much more the creditor can do.

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However, there are some kinds of debt that can indeed become a burden for your family members once you have passed. There are different rules for different types of debt:

Student Loans

Like other debts, your estate will be used to pay off any private student loan debt that you have at the time of your death. However, some lenders might forgive the debt if death occurs. If you don’t have enough in your estate to cover the debt, there is nothing that the lender can do. And unless someone cosigned your student loan, none of your friends or family will be responsible for the debt. Any federal student loan debts you have are completely discharged when you die, so you don’t need to worry about that.

Car Loans

There are a few different ways that a car loan can be handled after the owner passes away. Of course, money from the estate can be used to pay it off, or whoever inherited the vehicle can continue to make payments as normal. However, if the payments stop coming on the loan, the lender can legally repossess the vehicle.

Having trouble dealing with your auto loan debt? Check this out.


Your mortgage could end up being a problem for someone else if there is joint ownership of the home or if it goes to someone as an inheritance. If no one other than the deceased owns the house, the mortgage can be paid off out of the estate. However, if you don’t have enough in the estate, the home can be sold to cover the remaining amount of the mortgage. Generally, a home is worth more than the outstanding mortgage debt, so selling the house (in most cases) should yield enough to pay off the remaining mortgage balance.

To avoid this problem, try to pay off your mortgage early. Here’s how.

Credit Card Debt

Unless someone is a joint account holder with you, they will not be responsible for your credit card once you die. If there is not enough in the estate to cover it, the creditors will be unable to do anything. However, if you live in a community property state, your spouse will be responsible for any debts you racked up during the marriage. In these states, it is presumed that each spouse equally owns the property, as well as debt.

Click here to learn more about credit cards and revolving debt.

Am I Responsible For My Spouse or Parent’s Debt After Death?

So now that you know what happens to your debt after death, what about if your parents or spouse pass away and you are left to deal with their finances, including their debt?

Well, the answer is no, you won’t be responsible unless you co-signed on a loan or other credit product with them. Of course, this debt could have an impact on how much you inherit, as all debt must be paid by the estate before any inheritance is given out.

However, as far as you being responsible for paying off the remaining debt of your family members, that isn’t often the case. The only time you are responsible for someone else’s debt (family or otherwise) is if you have co-signed a loan for them, are a joint account holder (or co-own a house with them) or if you and your spouse lived in a community property state such as:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

So thankfully, the answer to the question of “can debt be inherited?” is normally no.

Be Prepared For The Future

How to deal with debt after death is certainly a difficult thing to talk about, but it is important to talk to your parents and/or spouse sooner rather than later about what they have set up for themselves. You should discuss any policies, insurance, accounts, and debt they have. Knowing this all makes it much easier for you to be able to help them in the future if need be.

If you’re a parent, make sure to also teach your children about personal finance.

Looking For Debt Help?

If you or someone close to you is currently struggling with debt issues and are looking to get them under control, Rebound Finance can help. Ask about our wide variety of personalized debt relief services and programs today.

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