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What Happens to Your Debts After You Die?

by Ryan Guina

When it comes to estate planning, most people think about what will happen to their assets when they pass away.  What many people tend to forget about is what happens to their debt when they die.  Just like your money, you can’t take your debt with you when you die (at least in most cases). Unfortunately, your survivors may have the burden of dealing with creditors and lenders who want to collect their money after your death.  Here we take a look at what happens to your debt when you die and how your accounts should be handled to avoid additional financial burdens.

Can you inherit credit card debt?

There are several factors that determine what happens to your credit card debt after your passing.  The main factors to consider are the state in which you live and person who applied for the account.  In most cases credit card debt is paid for through the estate of the decedent.  This means if you have credit card debt at the time of your death, assets held in your estate will be used to pay off the debt.  If there is not enough money in the estate to cover credit card bills, the credit card company will end up taking the hit and writing off the unpaid debt.

There are two situations where your debt can be passed onto another person.  If the credit card account was a joint account that was shared with another person such as a spouse or business partner, that person would be legally responsible for paying off the debt instead of your estate.  This applies to anyone who signed the application, but does not applied to authorized credit card users who had charging privileges but did not apply for the credit originally.  The second situation occurs in states that employ community property laws.  They include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.  Depending on the laws in each state, the surviving spouse may be responsible for the credit card debt of their deceased partner even if they held a separate account.

What happens to other debts?

Similar to credit card debt, most other debts held in the decedents name only will be paid from assets in their estate.  In the case of secured debt, if the assets do not cover the debt, the property may be sold or repossessed to cover the debt.  In the case of accounts held jointly with another person, the surviving account holder will be responsible for any remaining debt.

How should accounts be handled after a death?

After a death it is important that all creditors are notified of the account holders passing.  Without being notified, they have no way of knowing about a death and will continue to pile on fees and penalties for payments not made on time.  This can increase the amount of debt that will eventually be paid out of the estate, reducing the inheritance of beneficiaries.  In most cases the person handling the estate will be responsible for notifying creditors and providing copies of the death certificate. You also want to protect yourself from unscrupulous creditors who may try to get money from you which they are not legally entitled to.

This is one area where using an estate lawyer to prepare a will may be beneficial to ensure the estate is handled properly. The last thing you want to happen is to have the entire estate held up in probate or in court while a judge tries to determine how to settle the estate.

This is why life insurance is so important

Life insurance is there to protect you and your loved one. When deciding how much life insurance to buy, you should not only consider lost income, but how much money is needed to settle all outstanding debts.


Published or updated January 12, 2012.
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{ 6 comments… read them below or add one }

1 Brad

This was helpful. I was wondering about this the other day.

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2 Evan

This is such a huge problem that often gets brought to light every couple months with shady companies demanding money from grieving family members.

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3 Dan

I’m trying to improve my financial standing so that my kids are set when I am gone and this post is going to be a huge help for me. These are the kinds of things most of us learn, or maybe our loved ones learn, the hard way. Thanks for the post!

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4 Sandy @ yesiamcheap

Thank you for covering this! One more thing that I’ve heard happening more often lately are bill collectors trying to collect money from relatives of deceased individuals. These are people that are legally not financially responsible for the debts.

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5 Michael

This was very helpful, I have been wondering about how this is handled for months with elderly parents. And for me, too.

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6 Julie Kinnear

Thanks for helpful information. Above all I think the will can sort out everything easily, especially the credit card debts. It can be useful also to sort out the estate properties for survivors. Well, I have also a good experience with life insurance because it can cover the mortgages as well. I am wondering what else can help too?

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