What Happens to Debt When You Die?
Whether you have credit card balances, a mortgage or student loans, it’s important to consider and prepare for what happens if you die with debt. This all depends on what types of debts you still owe, the value of your estate and whether you share any debt with your spouse.
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Who is responsible for your debt when you die?
In a way, even after you die, you are still responsible for your debts.
All the property you leave behind is referred to as your estate. If you die with debt, the balances will be paid using the assets from your estate by your administrator, executor or personal representative. The process of dividing up your estate is known as probate.
Your debts are typically split into two categories: secured and unsecured debt.
- Secured debt: This type of debt requires that you put down collateral — such as a savings account or vehicle — in order to get a loan. If a secured debt isn’t repaid, the collateral can be seized by the lender as payment, so this type of debt is typically prioritized. Auto loans and mortgages are common examples of secured debt.
- Unsecured debt: If you don’t need to provide a lender any collateral, this is referred to as unsecured debt. Common types of unsecured debt include credit cards, personal loans and student loans.
If you don’t own any property or assets when you die, your debts will generally go unpaid. Unfortunately, there are still some instances in which those unpaid balances may be passed on to your family members.
Which debts are inherited?
Typically, no one else is responsible for your debts after you pass away, unless the debts are shared. Your debt may be inherited if:
- Your debt is held in a joint account
- You borrowed money as a cosigner
- Your state law indicates that surviving parents and spouses could be held responsible for certain debts (such as medical expenses)
- You live in a community property state where surviving spouses share ownership for some marital debts
- The person responsible for managing your estate didn’t adhere to state probate laws
Types of debt
In the event of a loved one’s death, these are some common types of debt your surviving loved ones may have to manage.
After you die, the repayment of any lingering medical debt will largely depend on which state you live in. Some states require family members to cover certain medical bills, so your loved ones may be on the hook for some of your health care expenses.
Since most credit cards are unsecured forms of debt, any remaining balance will be repaid by your estate. If there isn’t enough money in your estate to cover the entire credit card debt, it’s likely that the balance will remain unpaid.
If you hold a joint credit card account, however, your cosigner or co-borrower will be responsible for keeping up with payments. Authorized users are not obligated to repay credit card debt if the primary cardholder dies.
There is an option to pass both your house and the loan on to your beneficiaries if you still owe a mortgage when you die. If you have a co-borrower on your mortgage, they will assume responsibility for the loan. If not, you can specify in your will what will happen to your home after you die.
Like credit cards, personal loans are typically unsecured, so your estate will pay the debt. If there isn’t enough in your estate to cover the remainder of your loan balance, it will go unpaid unless there is a cosigner or co-borrower.
Auto loans usually come with what’s known as a death clause, which outlines what happens in case the borrower dies. Since auto loans are secured, the lender may repossess the car if payments aren’t made. If a beneficiary chooses to keep making car loan payments, the lender may transfer the title to their name or refinance the loan.
Once you submit proof of death, all federal student loans are discharged. This also includes parent PLUS loans if either the parent(s) or student dies. When it comes to private student loans, the outcome varies from lender to lender, though some offer forgiveness in the event of a borrower’s death.
How to notify creditors of death
After a loved one dies, you’ll need to notify creditors by sending them a copy of the death certificate. You can do this by contacting your state’s vital records office. Be sure to follow any application guidelines.
To track down your deceased loved one’s creditors, you can obtain copies of their credit reports from the three major credit bureaus.
Typically, while details of the estate are being sorted out, creditors will pause collection efforts. They may also notify Equifax, Experian and TransUnion of the person’s death, though the executor of the estate or the Social Security Administration (SSA) can also do this.
Frequently asked questions
Your beneficiaries are only responsible for any outstanding debts they shared with you. For instance, if they were a cosigner on a loan you took out or a co-borrower on a mortgage, they’ll need to repay the debt in the event of your death. If not, your estate is responsible for covering your remaining debts.
The SSA may notify the three major credit bureaus of a person’s death, but the executor of the estate should also contact creditors. Once it is confirmed, a death notice is placed on the reports and they will be sealed.
Under the Fair Debt Collection Practices Act (FDCPA), collectors can only contact the following people regarding debts a deceased person left behind:
- Parent(s) if the deceased was a minor
- Legal guardians
- Executors, administrators or personal representatives of the deceased person’s estate
- Confirmed successors in interest
In most states, creditors only have three to six months to submit any claims of debt to the executor of the estate. If a creditor is properly notified and tries to file a claim after the statute of limitations has passed, they will be unable to collect the debt.