This Is the Only Debt That Disappears When You Die (and 9 Types That Don’t) (2024)

FAQs

This Is the Only Debt That Disappears When You Die (and 9 Types That Don’t)? ›

Federal student loans are the only debt that disappears when you pass away. Parent PLUS loans are also forgiven upon the passing of the parent or the child the loan served, even if the child has heirs to their estate. Private student loans follow different rules and may or may not be discharged when you pass away.

Most debt will be settled by your estate after you die. In many cases, the assets in your estate can be taken to pay off outstanding debt. Federal student loans are among the only types of debt to be commonly forgiven at death.

Additional examples of unsecured debt include medical debt and most types of credit card debt. If you die with unsecured debt, repayment becomes the responsibility of your estate.

If there's no money in their estate, the debts will usually go unpaid. For survivors of deceased loved ones, including spouses, you're not responsible for their debts unless you shared legal responsibility for repaying as a co-signer, a joint account holder, or if you fall within another exception.

In California, creditors only have one year to collect on a debt. It doesn't matter if the surviving spouse didn't take out a line of credit or lease a car, if their name is on it, it's a community asset and if there's still debt on this asset, it's known as a community debt.

Credit card debt doesn't follow you to the grave. Rather, after death, it lives on and is either paid off through estate assets or becomes the responsibility of a joint account holder or cosigner.

Key takeaways. Loans, medical debt and credit card debt are generally all able to be discharged through bankruptcy. Tax debt, alimony, spousal or child support and student loans are all typically ineligible for discharge.

Any money that remains is distributed to your spouse and children. If you die without leaving a will, trust, or joint account holders, and you have no survivors or beneficiaries, your estate's funds end up in the hands of the state. This is why estate planning is so important—even if you're in good health.

When you pass away, your mortgage doesn't suddenly disappear. Your mortgage lender still needs to be repaid and could foreclose on your home if that doesn't happen. In most cases, the responsibility of the mortgage will be passed to the beneficiary of the home if there is a will.

It may come as a relief to find out that, in general, you are not personally liable for your parents' debt. If they pass away with debt, it is repaid out of their estate. However, this means that debt repayment could diminish or eliminate assets and property you could have inherited from your parents.

What debt is unforgivable? ›

While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are: Alimony and child support. Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.

Auto loans don't disappear when the car owner passes away. Any debts the person owed in life will still need to be paid. Typically car loans have a death clause that details the repayment process if the borrower dies. If there's a will, the heir or heirs might inherit the loan along with the vehicle.

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.

If you die without life insurance or any available funds to cover your final expenses, the responsibility for handling your body and related costs will typically fall on your family or next of kin. Your family or next of kin will need to make arrangements for the disposition of your body.

A debt collector can contact your spouse. A debt collector can contact your parents or guardian if you are under 18 years old or live with them. A debt collector can also contact your attorney and, if otherwise allowed by law, credit reporting companies (Equifax, Experian, and TransUnion) about your debt.

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.

While credit and debit cards make purchasing things much more convenient, they're also tied to the accounts and identities of the persons they're registered with. This means it's illegal to use the payment card of another person.

If you don't pay a debt collector or collection agency, you'll likely face increasing efforts to collect the debt via phone calls, letters, or even social media contact. Not paying a debt in collections will also hurt your credit score. If you don't pay, the collection agency can sue you to try to collect the debt.

Notify at least one of the three major credit bureaus (Equifax^®, Experian^™ and TransUnion^®) and put a credit freeze on the deceased's account. This should prevent anyone from opening new accounts or credit cards in their name. Unfortunately, identity theft is not uncommon after a loved one passes away.

Certain debts are inherited after you die; others aren't. Inherited debts may include: Joint debts: If you took out a loan with someone else, they're responsible for repaying it after you die. Many types of debts can be joint debt; mortgages and car loans are the most common.

What happens to your IRS debt when you die? ›

So when a person passes away, the executors or administrators of their estate step into their shoes. Executors can claim rights due to the deceased person and are liable to cover unpaid taxes. Generally, the IRS or relevant tax authority can only claim unpaid taxes through the deceased's estate.

Most debt isn't inherited by someone else — instead, it passes to the estate. During probate, the executor of the estate typically pays off debts using the estate's assets first, and then they distribute leftover funds according to the deceased's will. However, some states may require that survivors be paid first.

If you are the executor or administrator of the deceased person's estate, debt collectors can contact you to discuss the deceased person's debts. Debt collectors are not allowed to say or hint that you are responsible for paying the debts with your own money.