Generally, you're not liable for the debts of your deceased relatives. So, if a family member dies, you aren't personally responsible for paying that person's debts in most cases. But the estate is. And you are typically responsible for paying your deceased spouse's debts if you live in a community property state.
Learn the answers to the following common questions about what happens to debts when a person dies:
- Do I have to pay my deceased parent's debts?
- Do I have to pay my deceased spouse's debts if I live in a community property state?
- Do I have to use insurance proceeds to pay my parent's debts after death?
Do I Have to Pay My Deceased Parent's Debts?
You usually won't inherit someone else's debt, with a few exceptions. If you cosigned for any of your parent's debts or credit accounts, then you have a personal, legal responsibility to pay off those debts.
Cosigning for a Debt
When you "cosign" on a credit contract with someone else, you each agree to be responsible for the debt. You promise to pay the debt if the other person doesn't, regardless of whether it's due to death or some other reason.
Simply put, if you're a cosigner on any account with your deceased parent, your responsibility to pay the debt survives that parent's death.
Community Property Exception
Also, in community property states, the responsibility to pay your spouse's debts continues after the death of one spouse. Both spouses are personally responsible for debts incurred during the marriage, regardless of which spouse's name is on the contract. (See "Do I have to pay my deceased spouse's debts if I live in a community property state?" below).
Bills Get Paid Before Heirs Get Money
However, even if you're not liable to pay your deceased parent's debts, that doesn't mean any money you expect to inherit from that parent, say from a savings account, is yours. The law requires the estate to pay the deceased's bills before distributing money to heirs. So, any money your parent had at the time of death must first go to that parent's creditors.
If funds are left over after the creditors are paid, you get it. But if the account doesn't have enough money to pay off your parent's creditors, you're not responsible for any unpaid balances—unless one of the above exceptions applies.
Responsibilities of the Executor
Most people leave unfinished business when they die. Not only must their property be distributed or disposed of, but someone must also pay their outstanding bills. When a will exists, the "executor" or "personal representative" is the person in charge of putting the estate in order, including paying off the decedent's creditors. (If no will exists, it is the job of the "administrator.")
The executor starts by figuring out how much property the deceased person had upon death, called the "estate." The estate includes all the decedent's property, such as houses, cars, personal property, and household possessions. The executor then calculates how many bills the decedent still owes and pays the remaining bills out of the estate. The executor will likely use cash to pay creditors if money is available. If unavailable, the executor sells the property and uses the proceeds to pay the bills.
The executor also has other duties, including deciding whether probate is necessary, placing a value on the assets, setting up a bank account, and paying the estate's ongoing expenses and taxes. The executor's most important job, though, involves notifying creditors and treating them fairly before disbursing any remaining funds to heirs.
Consequences of Not Paying Bills
Determining which debts must be paid after death can be complicated and differs from state to state. If you're unsure about your responsibilities following the death of a loved one, it's a good idea to consult with an experienced attorney.
Do I Have to Pay My Deceased Spouse's Debts If I Live in a Community Property State?
Death doesn't wipe out debts. But in most situations, friends and relatives aren't responsible for a decedent's bills if the estate doesn't have enough money to pay them. In fact, it's illegal for creditors to try to collect the deceased person's debts from anyone who didn't sign the contract creating the debt—unless the decedent was your spouse and you live in a community property state.
In community property states, spouses are each equally responsible for paying each other's debts as long as one spouse acquired the bill during the marriage. It doesn't matter whose name is on the bill. If one spouse owes money to someone else, that creditor can sue and get a judgment against both spouses. For example, if one spouse likes to gamble and racks up a $50,000 poker debt, the other spouse is also responsible for paying the debt.
What Are the Community Property States?
The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (Alaska allows married couples to opt into a community property system. In Florida, Kentucky, South Dakota, and Tennessee, spouses have the option of identifying property held in trust as community property.)
In these states, spouses are generally responsible for the debts of the other, subject to a few exceptions. So, a surviving spouse is usually responsible for paying the bills of a deceased spouse.
Does a Spouse Have to Pay All of the Other Spouse's Debts After Death?
Spouses are only responsible for each other's community property debts, which are bills incurred during the marriage. However, spouses aren't liable for each other's separate debts. These are the bills that the spouse already had before the marriage.
Also, only one spouse is usually liable if the debt didn't benefit the "community." For example, if one spouse put on a credit application that the other spouse's income wouldn't be used to pay the debt or charged the expenses of a vacation while the other spouse stayed home, the nonborrowing spouse probably wouldn't be responsible for paying the debt of the borrowing spouse.
Other Options for Dealing With Your Deceased Spouse's Debts
If your deceased spouse's debts are significant and you don't have the money to pay them, you have other options available.
- Getting rid of the debts in bankruptcy. If you don't have the money to repay your deceased spouse's debts, you might consider consulting with a bankruptcy attorney. If you qualify for a Chapter 7 bankruptcy, you can likely get rid of many, if not all, of the bills. Debts such as credit card debts, medical bills, and personal loans are often discharged (eliminated) in bankruptcy.
- Some people are judgment proof. A creditor won't be able to collect from you if you're judgment proof. You might be judgment proof if your income is protected from garnishment and you don't have many (or any) assets like a house, personal property, or savings to pay off debts. However, being judgment proof is sometimes temporary. Your financial situation could improve.
Do I Have to Use Insurance Proceeds to Pay My Parent's Debts After Death?
If you receive life insurance proceeds payable directly to you, you don't have to use them to pay your parent's debts. As the named beneficiary on a life insurance policy, that money is yours to use. You're not responsible for the debts of others, including your parents, spouse, or children, unless the debt is also in your name or you cosigned for the debt. (Again, an exception to this general rule is in community property states. In those states, you're likely liable for your deceased spouse's debts if they were "community" debts.)
Life Insurance Proceeds Belong to the Beneficiary
That money belongs to you if you're a life insurance policy beneficiary. Your parent's creditors can't force you to use it to pay that parent's debts.
What Happens If the Debts Go Unpaid?
You might, however, face some consequences if the debts go unpaid. (These consequences are unrelated to your right to keep the life insurance money, though.) The consequences depend on whether your parent owned property that must transfer through probate or whether the property had existing liens against it.
Claims Against Probate Property
If your parent had assets that have to transfer through probate, your parent's creditors will be able to file claims in the probate estate. Typically, property that has to transfer through probate is property where your parent held legal title in their name alone, such as real estate, bank accounts, or automobiles. The probate court won't transfer the property to the heirs until the administrator or executor pays all the debts.
If you're expecting to file a probate estate, you should decide whether it will cost you less to settle with the creditors now or have the administrator or executor pay them through probate. An attorney can help you figure this out.
Liens Against Property
If the creditor had a lien against your parent's property before your parent passed away, that lien must be paid before the property can be sold or transferred. If your parent's mortgage, for example, goes unpaid, the lender may foreclose on the house.
Similarly, if your parent owned a car and was making payments, the lender may repossess the car after the payments stop. If you want to keep these kinds of assets or sell them yourself, it might make sense to work with these creditors.
Other Debts
If your parent didn't have assets that must be transferred through probate, other creditors, like credit card companies and medical providers, are out of luck. These creditors can't force you or other relatives to pay the debt and can't collect it through other means.
Stopping Debt Collector Harassment
Just because you're not responsible for paying the debt doesn't mean creditors or debt collectors won't try to coerce you into doing so. If a creditor or collector is demanding payment from you for a debt owed by someone who's passed away, offer to provide the creditor or collector with a copy of the death certificate.
If the harassment continues, know that you can safely ignore it. You also have the right to report abusive debt collectors to the Consumer Financial Protection Bureau or your state's consumer protection agency.
If you think a debt collector has violated the law when trying to collect a debt, need help dealing with an aggressive debt collector, or want assistance negotiating a settlement, consider consulting with a debt relief lawyer.
FAQs
What happens to debt when a person dies? ›
Generally, the deceased person's estate is responsible for paying any unpaid debts. When a person dies, their assets pass to their estate. If there is no money or property left, then the debt generally will not be paid. Generally, no one else is required to pay the debts of someone who died.
What debts are not forgiven at death? ›Bottom line. Federal student loans are the only debt that truly vanishes when you pass away. All other debt may be required to be repaid by a co-owner, cosigner, spouse, or your estate.
Who collects debt from a deceased person? ›The executor — the person named in a will to carry out what it says after the person's death — is responsible for settling the deceased person's debts. If there's no will, the court may appoint an administrator, personal representative, or universal successor and give them the power to settle the affairs of the estate.
Is wife responsible for deceased husband's credit card debt? ›When someone dies with an unpaid debt, it's generally paid with the money or property left in the estate. If your spouse dies, you're generally not responsible for their debt, unless it's a shared debt, or you are responsible under state law.
Can creditors go after beneficiaries? ›When a person dies, creditors can hold their estate and/or trust responsible for paying their outstanding debts. Similarly, creditors may be able to collect payment for the outstanding debts of beneficiaries from the distributions they receive from the trustee or executor/administrator.
Does life insurance have to be used to pay the deceased debts? ›Friends, relatives, and insurance beneficiaries are not responsible for paying any debts the decedent left behind, so the money is out of the reach of their creditors. The life insurance proceeds don't have to be used to pay the decedent's final bills.
Can debt collectors go after family of deceased? ›If you are the spouse of a person who died, parent of a child under 18 who died, or a personal representative for someone's estate. Debt collectors can mention the debt to you, and you have the right to learn more about it. But this doesn't necessarily mean that you're personally responsible for paying it.
Can creditors go after joint bank accounts after death? ›Can a creditor go after joint tenancy assets? Joint tenancy (with rights of survivorship) is extremely common between spouses and in nearly all cases creditors very little to no rights against property held in joint tenancy between the deceased person and the joint tenant.
Can the IRS come after me for my parents debt? ›If you don't file taxes for a deceased person, the IRS can take legal action by placing a federal lien against the Estate. This essentially means you must pay the federal taxes before closing any other debts or accounts. If not, the IRS can demand the taxes be paid by the legal representative of the deceased.
How long can you keep a deceased person's bank account open? ›(a) Upon the death of an accountholder, the FDIC will insure the deceased owner's accounts as if he or she were still alive for six months after his or her death.
Do you inherit your parents debt? ›
Do you inherit your parents' debt? If a parent dies, their debt doesn't necessarily transfer to their surviving spouse or children. The person's estate—the property they owned—is responsible for their remaining debt.
Which is the correct order of payment from an estate? ›Typically, fees — such as fiduciary, attorney, executor, and estate taxes — are paid first, followed by burial and funeral costs. If the deceased member's family was dependent on him or her for living expenses, they will receive a “family allowance” to cover expenses. The next priority is federal taxes.
Does Medicare pay bills after death? ›Medicare pays a surviving relative of the deceased beneficiary in accordance with the priorities in paragraph (c)(3) of this section. If none of those relatives survive. Medicare pays the legal representative of the deceased beneficiary's estate. If there is no legal representative of the estate, no payment is made.
Can you negotiate credit card debt after death? ›It's possible to negotiate the credit card debt of a deceased person if you're legally responsible for paying the debt. That means you must be the executor or the administrator of the estate, a cosigner or joint account holder on the credit card, or a surviving spouse in a community property state.
How do credit card companies know when someone dies? ›Credit reporting companies regularly receive notifications from the Social Security Administration about individuals who have passed away, but it's better to also notify them on your own to ensure no one applies for credit in the deceased's name in the meantime.
What overrides beneficiaries? ›The Will will also name beneficiaries who are to receive assets. An executor can override the wishes of these beneficiaries due to their legal duty.
Can creditors garnish Social Security? ›In general, the answer is no, creditors and debt collectors cannot seize your Social Security benefits.
Do creditors get paid before beneficiaries? ›Upon approval, the creditors of the estate are paid; if not in full, in proportion to the debt to asset ratio. However, these are not the first debts paid. When a decedent dies, their property is used to pay for probate and funeral expenses. Then debts are paid prior to any disbursements to beneficiaries.
How do you protect death benefit from creditors? ›Creditors cannot go after the insurance company for any money owed by the beneficiary. Naming a trust the beneficiary of a life insurance policy is another way to protect the death benefit from your heir's creditors.
Can creditors take 401K after death? ›Can Creditors Go After 401 K After Death? If you have a lot of debt, you might be concerned that creditors may try to go after your 401K plan or benefit in the event that you pass away. Fortunately, this is generally not possible. 401K rules stipulate that IRA and 401K account types are protected from creditors.
Can IRS take life insurance from beneficiary? ›
Answer: Generally, life insurance proceeds you receive as a beneficiary due to the death of the insured person, aren't includable in gross income and you don't have to report them. However, any interest you receive is taxable and you should report it as interest received.
What is the 11 word phrase to stop debt collectors? ›If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
How do you write a no asset letter after death? ›To whom it may concern, As the representative of [decedent's first name], I am writing to inform you that they have passed away. Please cancel their account immediately. If there is an outstanding balance on the account, please notify me as soon as possible at the included address.
What is it called when someone dies and you get money? ›BENEFICIARY - A person named to receive property or other benefits. CODICIL A supplement or an addition to a Will.
How do banks find out someone has died? ›The main way a bank finds out that someone has died is when the family notifies the institution. Anyone can notify a bank about a person's death if they have the proper paperwork. But usually, this responsibility falls on the person's next of kin or estate representative.
What happens if no beneficiary is named on bank account? ›If a bank account has no joint owner or designated beneficiary, it will likely have to go through probate. The account funds will then be distributed—after all creditors of the estate are paid off—according to the terms of the will.
What documents are needed to close a bank account after death? ›Proof of death, such as certified copies of the death certificate. Documentation about the account and its owner, including the deceased's full legal name, Social Security number, and the bank account number.
Do I need to notify the IRS of a death? ›The return must report all income up to the date of death and claim all eligible credits and deductions. If the deceased person did not file individual income tax returns for the years before their death, their surviving spouse or representative may have to file prior year returns.
What happens when a person dies and they owe the IRS? ›While some debts disappear after the debtor dies, that's not true of tax debts. That debt is now owed to the IRS by the deceased's estate, and the IRS will attach a lien to it for the amount owed. If the estate includes property, like a home, the lien may include that property.
Can the IRS collect on a 10 year old debt? ›Each tax assessment has a Collection Statute Expiration Date (CSED). Internal Revenue Code section 6502 provides that the length of the period for collection after assessment of a tax liability is 10 years. The collection statute expiration ends the government's right to pursue collection of a liability.
What happens if you don't close a deceased person's bank account? ›
If someone dies without a will, the bank account still passes to the named beneficiary for the account. If someone dies without a will and without naming a beneficiary, it gets more complicated. In general, the executor of the estate handles any assets the deceased owned, including money in bank accounts.
Are bank accounts always frozen at death? ›Bank accounts do not get frozen and your trustee can pay for final expenses, utilities, mortgage payments, and generally just keeping up the estate until it needs to be distributed.
Can I withdraw money from deceased account? ›Once a Grant of Probate has been awarded, the executor or administrator will be able to take this document to any banks where the person who has died held an account. They will then be given permission to withdraw any money from the accounts and distribute it as per instructions in the Will.
Am I responsible for my elderly parents debt? ›Your mother or father may have had substantial credit card debt, a mortgage, or car loan. The short answer to the question is no, you will not be personally responsible for the debt, but failure to pay such a debt can affect the use and control of secured assets like real estate and vehicles.
What not to do when someone dies? ›- 1 – DO NOT tell their bank. ...
- 2 – DO NOT wait to call Social Security. ...
- 3 – DO NOT wait to call their Pension. ...
- 4 – DO NOT tell the utility companies. ...
- 5 – DO NOT give away or promise any items to loved ones. ...
- 6 – DO NOT sell any of their personal assets. ...
- 7 – DO NOT drive their vehicles.
Generally, the deceased person's estate is responsible for paying any unpaid debts. When a person dies, their assets pass to their estate. If there is no money or property left, then the debt generally will not be paid. Generally, no one else is required to pay the debts of someone who died.
What is the order of beneficiaries? ›- First: to your widow or widower.
- Second: if none, to your child or children in equal shares, with the share of any deceased child distributed among that child's descendants.
- Third: if none, to your parents in equal shares or the entire amount to your surviving parent.
Disbursal of estates to heirs becomes public record. Creditors and collection agencies often review those records to look for people who owe them money among the recipients of inherited property. This alerts them to the possibility that a debtor now has the money to repay some or all of their debt.
Who notifies Social Security when someone dies? ›In most cases, the funeral home will report the person's death to us. You should give the funeral home the deceased person's Social Security number if you want them to make the report. If you need to report a death or apply for benefits, call 1-800-772-1213 (TTY 1-800-325-0778).
Who notifies Medicare when someone dies? ›The Social Security office automatically notifies Medicare of the death. If the deceased was receiving Social Security payments, the payment for the month of the death must be returned to Social Security.
Is life insurance considered part of an estate? ›
Generally, death benefits from life insurance are included in the estate of the owner of the policy, regardless of who is paying the insurance premium or who is named beneficiary.
When my husband dies am I responsible for his credit card debt? ›When someone dies with an unpaid debt, it's generally paid with the money or property left in the estate. If your spouse dies, you're generally not responsible for their debt, unless it's a shared debt, or you are responsible under state law.
Should you cancel credit cards when someone dies? ›Notify the card issuer
All credit card accounts should be closed immediately after the primary cardholder dies. Act quickly to avoid interest and finance charges. Identity thieves troll the obituaries and online records to learn about recent deaths so they can steal from accounts or create new ones.
When you notify the issuer, be prepared to present an original copy of the death certificate and any important court documents pertaining to the estate. Not all issuers request this information, but many do, so it's helpful to have access if necessary.
What documents are needed to report death to Social Security? ›Your Social Security number and the deceased worker's Social Security number. A death certificate. (Generally, the funeral director provides a statement that can be used for this purpose.) Proof of the deceased worker's earnings for the previous year (W-2 forms or self-employment tax return).
Am I responsible for my parents debt? ›Are Children Personally Liable for Parent's Debts? When a parent dies, their children are not personally liable to creditors for their debt. A creditor cannot go after a child to collect on a parent's debt if there is no contractual agreement between the child and their parents' creditors.
How do creditors know when someone dies? ›Your loved ones or the executor of your will should notify creditors of your death as soon as possible. To do so, they'll need to send each creditor a copy of your death certificate. Creditors generally pause efforts to collect on unpaid debts while your estate is being settled.
What debts do children inherit? ›A Child is Not Personally Responsible for a Parent's Debt—Unless They Co-Signed. As a starting point, it is important to understand that children are not legally responsible for the debts of their parents unless they themselves have co-signed the loan.
How much debt can you inherit? ›You generally don't inherit debts belonging to someone else the way you might inherit property or other assets from them. So even if a debt collector attempts to request payment from you, there'd be no legal obligation to pay. The catch is that any debts left outstanding would be deducted from the estate's assets.
What debts are inherited? ›To be clear, debts that are in your parent's name only are debts the estate has to pay. According to the Consumer Financial Protection Bureau, you will be the hook for money owed only if these situations apply to you: You co-signed a loan with your parent. The loan becomes your responsibility when your parent dies.
Does Social Security notify the IRS when someone dies? ›
We issue a CP01H notice when the IRS receives a tax return that contains a Social Security number (SSN) for an account that we locked because our records indicate the TIN belongs to an individual who died prior to the tax year of the return submitted.
How far back can the IRS audit a deceased person? ›In general, IRC 6501(a) requires the IRS to assess an estate tax liability within three years after the filing date (or due date, if later) of the estate tax return.
Can I buy my parents house for what they owe? ›Can I buy my parents' house for what they owe? Yes, you can buy your parents' house for the remaining amount owed on the mortgage if they give you a gift of equity. This allows them to sell you the house for less than its market value (assuming they owe less than that).
Can you inherit credit score? ›If your card company does report the account, your authorized user will inherit the credit history of that card. If you've got a long history of on-time payments on that account, the credit score of your authorized user may get a boost. This is true even if your child never makes any charges on the card directly.