What Happens to Your Debt When You Die?
A 2020 study from the Employee Benefit Research Institute found that the share of U.S. households with high debt-to-asset and debt-to-income ratios among those aged 75 and over increased significantly between the years 2007 and 2016. In other words, older Americans today are struggling with much more debt than their predecessors.
So although it may be a difficult subject to broach, it’s natural to wonder—what debts are forgiven when you die? And when you’re gone, who is responsible for paying off your remaining debts?
In general, when you die with debt, your creditors can make claims against your estate for repayment.
What is an estate?
An estate is everything of value that you own, as well as everything that makes up your net worth. Items that comprise your estate include:
- Physical possessions like furniture, art, vehicles, etc.
- Real estate
- Owned land
- Insurance policies
- Assets you have a controlling interest in
Typically, the makeup of your estate is only relevant when you die or if you declare bankruptcy (at which point your estate is evaluated and possibly reorganized). Estate planning—including drawing up a legal will—can help you decide where your assets will be allocated and how your debt will be managed when you pass. It’s helpful to consult with an estate attorney to help you plan.
Debt and your estate
If you die with unpaid debt and your state law requires it to be paid, that debt will be repaid using money or property from your estate. This means that your executor may need to use some or all of the money you leave behind—and even potentially sell property belonging to your estate—before any of your heirs can claim their inheritance.
In some states, however, the law requires beneficiaries of your estate to be compensated before debts are repaid; if there’s no money or property left to repay your debts, then the debt will simply go unpaid.
In the case of 401(k)s or other retirement investment accounts, you must list beneficiaries on the account itself—not just in your will—to ensure that the money is protected from creditors’ claims.
Creditors have a fixed period of time to make a claim against an estate—typically between two and six months.
Can creditors collect life insurance?
Thankfully, life insurance is protected from collection because it is not considered part of your estate—unless your estate is named as the beneficiary of your policy.
Life insurance is a great way to guarantee that your family or other loved ones will have a way to care for themselves when you are no longer around to help them, so if you want your life insurance money to go directly to them and not to your creditors, be sure to name your beneficiaries thoughtfully.
Who is responsible for my debt when I die?
Are children responsible for their parents’ debt after death? Thankfully, no—meaning a grieving child can focus on all the other responsibilities that follow a parent’s death without the additional stress of incurring new debt.
Similarly, spouses are not necessarily liable for their deceased partners’ debt. Even if you are an executor, personal administrator, or personal representative for your spouse’s estate, you are not responsible for their debt—unless the debt also belongs to you.
Parties who might be liable to repay a debt include:
- Joint account holders
- Co-signers on a loan
- A surviving spouse living in a community property
Additionally, some states might have statutes in place where a relative might be responsible for costs like healthcare.
Authorized users on a credit card belonging to a deceased person are not, however, responsible for repaying that debt.
Can debt collectors call you about your deceased relative’s debt?
There are federal rules that govern who creditors can call and what they can say about a deceased person’s debt. If a debt collector contacts you about a deceased loved one’s debts, that does not necessarily mean you’re responsible for paying them. Legally, collectors can mention the debt to you, but if you’re not responsible for repaying it, they cannot tell you that you are.
A debt collector is allowed to talk to you about locating the executor or administrator of the deceased person’s estate, but they shouldn’t discuss the debt itself with you. If you're the executor or administrator, they can discuss the debt with you, but they cannot imply that you’re personally responsible for paying it unless you partly own the loan.
If you’re being contacted by a collector about a deceased relative’s debt and aren’t sure whether you’re liable for repaying, you may want to talk to an attorney who can help you understand your responsibility.
You may also want to get details about the debt in question in writing—specifically, a formal document called a written validation notice. Collectors are required to give you this notice within five days of the first time they contacted you. If the person calling you refuses to give you details about the debt, they may be a scammer.
- Ebrahimi, Z. (2020). The Impact of Rising Household Debt Among Older Americans. EBRI Issue Brief, 502. Employee Benefit Research Institute.
- Does a person's debt go away when they die? Consumer Financial Protection Bureau. (2022, May 16). Retrieved from https://www.consumerfinance.gov/ask-cfpb/does-a-persons-debt-go-away-when-they-die-en-1463/
- Kagan, J. (2020, November 22). Estate. Investopedia. Retrieved from https://www.investopedia.com/terms/e/estate.asp
- Sahadi, J. (2014, June 19). Can you inherit your dead parent's debts? CNNMoney. Retrieved from https://money.cnn.com/2014/06/19/pf/inherited-debt-adult-children/
- Federal Trade Commission. (2021, May). Debts and deceased relatives. Consumer Advice. Retrieved from https://consumer.ftc.gov/articles/debts-deceased-relatives
- Am I responsible for my spouse's debts after they die? Consumer Financial Protection Bureau. (2022, May 16). Retrieved from https://www.consumerfinance.gov/ask-cfpb/am-i-responsible-for-my-spouses-debts-after-they-die-en-1467/
- Can I be personally responsible for paying my deceased relative's debts and can a debt collector contact me about those debts? Consumer Financial Protection Bureau. (2017, October 25). Retrieved from https://www.consumerfinance.gov/ask-cfpb/can-i-be-personally-responsible-for-paying-deceased-relatives-debts-can-debt-collector-contact-me-about-those-debts-en-1469/
- Report fraud. ReportFraud.ftc.gov. (n.d.). Retrieved from https://reportfraud.ftc.gov/#/
- National Association of Attorneys General. (n.d.). File a complaint. Consumer Protection. Retrieved from https://www.consumerresources.org/file-a-complaint/