What happens to your debt when you die

When you die, your debts do not disappear, but they are generally paid out of your estate, not by your family. Relatives usually are not personally responsible unless they co-signed or held the account jointly, live in a community property state that makes a spouse responsible, or are an executor who mishandles the estate. If the estate cannot pay everything, the unpaid debt generally goes unpaid.

The general rule: the estate pays

The Federal Trade Commission explains that a person's debts are owed by, and paid from, the deceased person's estate. The Consumer Financial Protection Bureau says that if the estate cannot pay a debt and no one shared responsibility for it, the debt may go unpaid.

The person who settles the estate is the executor named in the will, or an administrator appointed by the court if there is no will. They gather assets, notify creditors, pay valid debts and then distribute what is left to heirs through probate. Creditors typically have a limited window to file claims, which varies by state. Because state law sets the order in which debts are paid, heirs may receive nothing if the debts consume the estate, but they do not have to make up the shortfall from their own money.

When someone else can owe

According to the CFPB, you are generally not responsible for a deceased person's debt unless you:

• Co-signed the loan.
• Held a joint account, such as a joint credit card (an authorized user is different and generally is not liable).
• Are a surviving spouse in a state where law makes spouses responsible for certain debts, or in a community property state that requires jointly held property to pay a spouse's debts. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, according to IRS Publication 555. See community property states and life insurance, California and Texas.
• Are an executor who pays out the estate improperly or, where state law requires, pays a bill from jointly owned property.

A few states also have filial support laws that can make adult children responsible for a parent's certain care costs, but they are rarely enforced; a state attorney general or elder-law attorney can say whether one applies.

How common debts are handled

What happens to life insurance and other assets

Life insurance paid to a named beneficiary generally passes outside probate and is paid to that person directly, not to the estate; see does life insurance go through probate?. Whether creditors can reach it depends on state law and on whether the estate is named as the beneficiary. Naming the estate exposes the money to creditors and slows it, which is one reason why naming your estate as beneficiary is usually a mistake is usually a mistake. Retirement accounts and payable-on-death accounts with beneficiaries also pass directly. can creditors take life insurance money? explains state protections.

Debt collectors and scams

Collectors may contact a surviving spouse or the executor, and the FTC says they may not discuss the debt with other relatives and may not contact you before 8 a.m. or after 9 p.m. They also may not suggest you must pay from your own money if you are not liable, according to the CFPB, and harassment is always illegal. Some scammers pose as collectors of a "deceased relative's debt", so ask for written validation and don't pay by gift card or wire.

A step list for a family member

1. Get certified copies of the death certificate.
2. Find the executor or have a court appoint one if there is no will.
3. Gather statements and check a credit report for the deceased person.
4. Notify creditors in writing, and don't agree to pay a debt from your own money before you know you are liable.
5. Keep paying secured debts you want to keep, such as a mortgage or car loan.
6. Don't pay from the estate until you know it can cover all debts and taxes; ask a probate attorney if it looks short.
7. Tell collectors that you are not the debtor and that they can send correspondence to the executor.

Planning ahead: where life insurance helps

Debt leaves a gap when a spouse or co-signer would be left with it, or when you want heirs to receive property without a forced sale. Life insurance can pay off a co-signed or joint debt, a mortgage, and final expenses, and provide cash so the estate isn't forced to sell assets (see estate liquidity: paying taxes and debts without a fire sale). Size the need by adding up debts someone else would owe, then use the How much life insurance do I need?.

A hypothetical example

Say Dana, who lives in a non-community-property state, dies with $12,000 of credit card debt in her own name, a $200,000 mortgage she shares with her husband, and $90,000 of savings. The credit card issuer files a claim against her estate; the mortgage continues with her husband, who is also on the loan. If the estate has enough, the $12,000 comes from the savings. If it didn't, the issuer would generally absorb the loss and her husband would not owe it. A term policy naming him as beneficiary would pay off the mortgage regardless.

Key takeaways

• Debts are paid from the estate; relatives are generally not personally liable.
• Co-signers, joint account holders and spouses in community property states or states with spousal liability rules can owe.
• Secured debts like mortgages and car loans follow the property, so payments must continue to keep it.
• Federal student loans are discharged at death; private loans vary.
• Life insurance paid to a named beneficiary is generally outside probate and can fund joint debts and final costs.