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What Happens to Debt After Death?

When a loved one passes away, the last thing you want to worry about is whether they have outstanding debts to deal with. But when the initial shock and sadness passes, there are a number of financial issues that need to be taken care of, and debt will be among them. Take a look at some of the common questions that come up regarding debt after death. Of course, specific questions regarding a loved one’s debt can be complicated, and should be addressed with a qualified estate attorney.

Does debt just disappear?—In most states, when a person dies, the responsibility for their debt transfers from them to their estate. Other family members are not responsible to pay those debts, unless they were co-signers on a loan or credit card. There are exceptions to this, however. In community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, the surviving spouse may be responsible to pay those debts. The same may be true in Alaska, which is an opt-in community property state.

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Do I need to let anyone know?—When someone passes away, it is up to the executor of the estate to let creditors and credit bureaus know, and to forward a copy of the death certificate once it’s available. It’s also important to ask to have the deceased person’s credit report marked: Deceased: Do Not Issue Credit. This will help safeguard against the increasingly common crime of identity theft of the dead.

If I’m an authorized user on a credit card, can I keep using it?—No. Because authorized users are not responsible to pay back the main cardholder’s’ debt, continuing to charge on that card could be considered fraud, even if you intend to keep making payments.

What if my spouse passes away and I can’t pay our shared debt?—This only comes up as an issue in the community property states mentioned above. Those who find themselves in this situation should contact each creditor individually to discuss repayment options. Additionally, Credit Counseling is a good way to figure out the new baseline financial reality and create an action plan for how to proceed going forward.
What if the estate can’t pay?—In all but community property states, if the estate can’t cover outstanding debts, creditors will eventually be forced to write off the amounts owed.