When a loved one dies, their estate typically covers the cost of any lingering debts. That means any money or property they had would be used for paying off the remaining debt, which likely wouldn’t be passed on to family members.
However, there are some exceptions where you can inherit debt, such as being a co-signer on a loan or if your state has certain laws for surviving spouses.
Let’s explore different situations to see whether you inherit debt.
- In most cases, you can’t inherit debt from the passing of a loved one. The estate of the deceased typically covers any remaining debt.
- Exceptions to the rule could include having joint debt on a loan or credit card. That means you’re a co-signer on a loan or a joint account holder on a credit card.
- You might also have debt passed to you in certain states depending on filial responsibility and community property laws.
Can you inherit debt?
In general, no, you can’t inherit debt. In most situations, debt from a deceased loved one is handled by the estate, which removes any responsibility from surviving relatives to pay off another person’s debt with their own money.
At least, that’s how it works most of the time. There are some exceptions to this rule depending on the circumstances, which we get into below.
However, here’s a step-by-step example of how debt could work with the passing of a loved one:
- Your loved one passes away but still has outstanding debts to be paid.
- The debts are paid off by the estate of your deceased family member. That could mean their money or assets are used to pay off the debts.
- Any remaining money or assets are distributed according to the terms of a will and/or trust, if applicable.
If an estate doesn’t have enough money or other assets to pay off debts, the debts could go unpaid rather than being passed on to anyone else. Unless you have shared responsibility for a debt or fall within another exception, you’re not responsible for a deceased person’s debts.
Note that payments from an estate’s assets are typically made in a certain order. Here’s the typical order in which you can expect debt payments to be made:
- Secured debts, such as mortgages or car loans
- Funeral costs
- Fees and costs of handling the estate
- Medical debt
- Unsecured debts, such as credit card debt
Beneficiaries often expect to receive money from an estate after debts and other costs are covered. If money or assets of an estate are used to pay off debts, though, any designated beneficiaries could receive less of an inheritance or nothing at all.
In some cases, state law could require the estate to pay beneficiaries first. That could mean there’s no money left to pay debts, and the debts go unpaid.
Debts that you can inherit
Some of the common forms of debts you could inherit include:
- A mortgage or home equity loan on an inherited property: If you inherit a property that has a mortgage, you typically have to sell the home to pay off the mortgage or continue making the mortgage payments yourself.
- Joint account holder on a credit card: A joint account means you share responsibility for debt attached to a credit card account. If another account holder passes away, you retain sole responsibility for any remaining balance, even if charges were made by the deceased individual. Note that authorized users don't have the same responsibilities as joint credit card account holders.
- Cosigner on a loan: Similar to a joint account holder on a credit card, cosigners are responsible for paying off any debt on a loan they’re attached to. If another cosigner passes away while the loan is still open, the remaining cosigner has to pay off the debt.
- Community property debt: If you live in a community property state and your spouse passes away, you may be responsible for certain debts. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
- Filial responsibility debt: Over half of all U.S. states have filial responsibility laws, which could mean medical debt could pass from a parent to adult children. Note that the exact terms differ between states, so you shouldn’t automatically assume you inherit your parents’ debt.
Debts that are forgiven
Many types of debt can go unpaid (meaning no one has to pay them) if the estate of a deceased individual doesn’t have sufficient money or assets. These could include:
- Credit cards
- Car loans
- Student loans
- Personal loans
- Medical bills
If the estate has sufficient money or assets, most of these debts will be paid by the estate. Federal student loan debt is typically discharged upon death, meaning it’s forgiven and doesn’t have to be paid. Private student loans could be discharged, but the remaining balance could also be collected.
If a property is included in an estate and that property has a mortgage, a beneficiary could decide to take over the mortgage or sell the property to pay off the loan.
How to deal with inherited debt
Most people likely won’t have to deal with inherited debt, but there are situations where a lingering debt might become your responsibility. Here are a few steps to take if it happens to you.
Contact an attorney
There are professionals who know how to deal with these types of situations. You should contact one, such as an attorney, to be your guide through this complicated process and offer legal advice. They can help you determine whether you’re responsible for any leftover debt and, if you are, what you need to do about it.
Notify credit bureaus and creditors
While the affairs of an estate are being handled, you can contact credit bureaus and creditors to notify them of the passing of your loved one. In some cases, you might have to provide a death certificate.
Taking these actions can let credit bureaus know that activity should be stopped on an individual’s credit report. Otherwise, there might be a risk of identity theft, which can still happen with deceased individuals.
Notifying lenders could keep them from contacting you while money and assets are distributed from the deceased person’s estate.
Consider debt consolidation
If you’ve consulted with an attorney and find out you’re responsible for the debt of a deceased individual, it’s time to take steps to pay off the debt.
Depending on your situation, you might consider debt consolidation. A repayment plan strategy through debt consolidation could help you organize your debt and, hopefully, pay a lower interest rate than you were paying before.
Taking steps to consolidate your debt could lead to paying off your debt quicker and paying less interest over time.
A note about debt collectorsThe Fair Debt Collection Practices Act (FDCPA) is a federal law that limits and governs debt collection practices. The FDCPA doesn’t allow debt collectors to use abusive, unfair, or deceptive practices to collect debts from you. You have the right to tell debt collectors to stop contacting you. But keep in mind that this won't erase any debt you might owe.
Assets that may be protected from debt collectors
If you do inherit debt, there are assets that are typically protected from debt collectors:
- Retirement accounts, such as IRAs or 401(k) accounts
- Life insurance policies
- Living trusts
- Social Security
- Supplemental Security Income
- Veterans’ benefits
- Federal Railroad payments for retirement, unemployment, and sickness
- Civil Service Retirement System (CSRS) payments
- Federal Employees Retirement System (FERS) payments
Do you inherit debt from your parents?
In general, you don’t inherit debt from your parents. Your parents’ estate is responsible for paying off any remaining debts, so you should be off the hook unless you were a joint account holder or cosigner on a loan or credit card that still needs to be paid off. Certain states could also have specific laws regarding the passing on of medical debt from relatives.
What is the difference between a will and a trust?
A will outlines how you want your assets handled after you die, while a trust can essentially do the same thing but also handle asset distribution while you’re still alive.
Wills are subject to a probate court process, which means the ultimate decision for how your assets are distributed is up to the court. Trusts aren’t typically subject to a probate process.
In what states can you inherit debt?
You could inherit debt from your spouse in a community property state, including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In some cases, you could inherit medical debt from relatives depending on your state’s laws regarding filial responsibility. Over half of U.S. states have filial responsibility laws.
With few exceptions, you likely won’t be inheriting any debt with the passing of a loved one. However, if you think you might find yourself in an uncommon situation, it could be worth checking your state laws and consulting with an attorney.
If you become responsible for paying back money, learn how to pay off debt.