What Happens to Debt When You Die

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Eighty percent of Americans hold some form of debt, whether in the form of a mortgage, car loans, or unpaid credit cards. When a person dies, this debt doesn’t just disappear. It gets passed on to the decedent’s estate, which simply means all of the property and other assets owned at the time of death. In a process called probate, debts are paid using estate assets and whatever is left over passes on the heirs.

If an estate has enough assets to cover a person’s debt, it’s dubbed a solvent estate. If, however, the debts exceed assets then the estate is known as an insolvent estate.

Who is liable for outstanding debt

In general, only a decedent’s estate is on the hook to pay any outstanding debts. And unless the heirs or spouse are co-signers on a loan, they won’t be held liable for the debt. But the debt will cut into whatever inheritance gets left behind as it must be paid before any assets can be transferred to the beneficiaries.

When it comes to death, not all debt is created equal, either. Certain types will be forgiven upon death (without the estate having to pay), while others won’t. In certain states, known as community property states, a surviving spouse is liable for the unpaid debts of the decedent.  There are nine community property states— Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin—that typically hold a surviving spouse accountable. (Alaska has an opt-in option for its residents.)

Here are some examples of what happens to some of the most common types of debt after death.

Student loans when you die

If you have federal student loan debt, that loan will automatically be discharged and the debt will be forgiven when you die. However, private student loans are a different matter. Most private student loan servicers will attempt to first collect from the borrower’s estate. If there isn’t an estate, it will then attempt to collect from a co-signer if one exists, before moving on to the surviving spouse. Many community property states have provisions that offer exceptions for surviving spouses in this case, unless the spouse is a co-signer on the loan.

Mortgage debt when you die

If you have a co-borrower on your mortgage, that person is still liable for the remaining mortgage payments. The same goes for a co-signer. If you don’t have either, and the home passes to a beneficiary through your will or the probate court, that person can either sell the home to pay off the debts or refinance the mortgage into his or her own name. But if the lender doesn’t receive regular payments on the mortgage during this period of transition, they have the right to foreclose.

Medical debt when you die

If you die with outstanding hospital or doctor’s bills, your estate is responsible for payment. You might be surprised that this applies even for Medicaid recipients; state programs will usually try to recover some of the cost of medical care, which may mean liquidating assets, such as a home or car, that were not included in Medicaid eligibility limitations. But even if the estate is responsible for the debt, that doesn’t mean your loved ones are stuck footing the bill. If your estate is insolvent (meaning it can’t cover the cost of the bills), that debt will not pass on to your surviving family.

Auto loans when you die

An executor can pay a car loan out of the estate. But if they can’t, the person who inherits your vehicle can continue making payments. Otherwise, if payments stop, the car will be repossessed by the lender.

Credit card debt when you die

Unlike a car loan or a mortgage, credit card debt is unsecured debt, meaning if your estate’s assets can’t cover the remaining balance, your heirs won’t be liable. However, if there is a joint holder on the account, that person will be responsible for any unpaid balance on the account. Authorized users, however, are not.

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