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What Happens to Your Debt When You Die? It Depends

Dying doesn’t always give you a free pass on paying off your debt.

Stressed couple looking at paperwork
Christy Rakoczy
Kristy Snyder
By Christy Rakoczy
and Kristy Snyder
Becca Borawski Jenkins
Edited by Becca Borawski Jenkins
Updated Dec. 17, 2024
Fact checked

When you die with debt, it doesn’t just disappear. Usually, your estate — all the money and assets you left behind — has to foot the bill.

But that’s not a hard-and-fast rule. And in some cases, your estate might not be enough to cover the entirety of your debt. What happens in these instances can vary.

This guide will help you understand what happens to your outstanding loan balances if you haven't figured out how to get out of debt before you die.

Who is responsible for your debt after you die?

In most cases, someone known as an executor handles your estate and is responsible for paying creditors what is owed out of your assets. The executor can be someone you choose in your will before you die, like a spouse or parent. It can also be an attorney.

Your assets include obvious things like your savings account as well as less obvious things like your car collection or fancy jewelry. If necessary, the executor will sell these items and use the proceeds to pay off your debt.

Once they’ve gathered all of your assets, it’s their job to distribute them as you designated in your will. This process is called probate. When probate is opened, creditors receive notice. The creditor can then file a claim in probate court.

As a result, your heirs might receive less money or property because some of the wealth you've left behind goes toward repaying your debt.

What kinds of debt can creditors collect from probate?

If you were in debt at your time of death, your creditors need to be paid first before your assets can be distributed to your loved ones. State laws specify the order in which debts are paid, so they can vary. But generally, here’s the payment order most states follow:

  • Secured debt
  • Funeral expenses
  • Medical expenses
  • A family allowance to those relying on the deceased for support
  • Unpaid claims to employees
  • Other unsecured debt

What if your estate doesn’t have enough money?

If your estate doesn't have enough money to pay back the debt, it’s called insolvency. When this happens, creditors typically cannot collect from your family members.

However, there are a few exceptions to this. The following people could potentially be held responsible by debt collectors for covering your unpaid debt balances after you've died:

  • The cosigner of a loan
  • Joint account holders
  • Spouses in community property states — these include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

When there’s not enough in the estate to cover the debt, creditors can reach out to some of the deceased person’s loved ones, including their:

  • Spouse
  • Parents (if the deceased was a minor)
  • Guardian
  • Executor, administrator, or other parties with the power to repay debts that are owed

Collectors are allowed to contact other relatives only to get the name and address of the executor or those responsible for debt payoff.

“Important”
Just because a debt collector might reach out to you, doesn’t mean you’re obligated to pay your deceased loved one’s debt. In fact, you’re not even obligated to speak to them. If they bother you too much, send them a cease-and-desist letter or hire a lawyer to handle communications for you.

Can creditors take your assets when you die?

Yes and no. The legality of what creditors can and can’t take to cover your debts upon your death varies by state and scenario. But below is a summary of what they can and cannot take in most instances.

What creditors can take to cover debt

Creditors can take any of the estate’s assets that serve as collateral for debt that isn't paid. This means if an auto loan isn't paid after death, creditors could repossess the vehicle. If the mortgage isn't paid, the lender could foreclose.

Creditors are also allowed to make a claim against the deceased's estate. Most estate assets can be taken to repay creditors, including:

  • Antiques
  • Family heirlooms
  • Jewelry
  • Real estate property
  • Vehicles

Tip
If you’re worried about losing precious items to collectors in probate, consider putting them into an irrevocable trust before you die. Once assets are placed in these trusts, you no longer own them, so creditors can’t claim them to cover your debt when you die.

What creditors can’t take to cover debt

State probate laws may provide protection for retirement accounts and proceeds from insurance policies. And creditors usually cannot access any money held in an irrevocable trust.

Types of debt and what’s owed after your death

Car loans

Who will pay: Cosigner; estate; spouse in community property state

Important considerations: Heirs that inherit cars after your death might need to refinance unpaid loans.

When talking about debt, it’s important to understand the difference between secured vs. unsecured debt. A car loan is a secured debt. That means the lender could repossess the vehicle in question to recoup its money.

If your heirs who inherit the car want to keep it, they will have to pay off the lender. If they don't have enough money to repay the entire loan balance, they might need to refinance the loan into their own name to keep the vehicle.

Medical debt

Who will pay: Cosigner; estate; spouse in community property state; children of insolvent parents

Important considerations: In states with filial responsibility laws, medical loan providers could try to collect from your children — but this isn’t common.

If Medicaid paid your medical bills during your lifetime, it might try to recoup the money spent from your estate after you die. Although it can take assets from your estate to do so, Medicaid cannot take your wealth if you have a surviving spouse, a child under 21, or a child with blindness or a disability.

Medical debt is unsecured, so if there's no one legally responsible for paying it (such as a spouse) and there are insufficient assets in your estate to pay for it, there's nothing the creditor can do to try to collect.

Credit card debt

Who will pay: Cosigner; estate; spouse in community property state

Important considerations: Authorized users do not become responsible for paying any unpaid balance just because they were entitled to use the credit card account.

A credit card is an unsecured debt. If creditors make a claim against the estate and there are insufficient funds to pay it and there's no joint account holder or spouse who is responsible, the credit card issuer is out of luck. There is nothing to repossess and nothing more the issuer can do to collect.

Mortgage and home equity loans

Who will pay: Cosigner; estate; spouse in community property state

Important considerations: If you inherit a house and want to keep it, you’ll need to keep paying the mortgage or refinance the home and get a loan in your name. Otherwise, the bank could foreclose on the home.

Usually, if a transfer of ownership occurs on a mortgaged property, a due-on-sale clause requires that the mortgage loan be repaid in full upon the transfer. However, in cases where someone inherits the house, those laws usually don't apply. Typically, heirs can take over ownership, assume responsibility for the mortgage, and continue making payments on the same loan as the deceased owner had.

If someone inherits the house but can't afford the payments, the lender might help them work out a loan modification or explore other loss mitigation options to avoid losing the home.

Student loans

Who will pay: Cosigner; estate; spouse in community property state

Important considerations: Student loans work differently than most other loans, and how they are handled will depend on the type of student loan — so your heirs may need to work with a lawyer for help.

If you have federal student loans, creditors will not try to collect from your estate or even from a cosigner. Your loans are discharged upon your death. This is even true of Parent PLUS Loans. If your parents took out PLUS Loans to help you pay for school and you die, the loans will be discharged.

Some private student loans provide for discharge upon death, but not all do. Your estate or cosigners may be responsible for repaying your private loans if you die while there is still a balance. It depends on your lender's rules.

Tax debt

Who will pay: Spouse; estate

Important considerations: If you die with unpaid tax debt, your spouse will be responsible for covering it.

If you and your spouse filed a joint tax return, you're both responsible for the tax debt that you owe. The IRS can also try to collect from your estate if you die.

If you do not have enough money in your estate and are unmarried or your spouse is granted what the IRS calls innocent spouse relief, then the IRS cannot try to collect from other heirs.

How to keep your debt away from loved ones

Estate planning could help you reduce the likelihood that your loved ones will end up becoming responsible for paying your debt or will end up losing a part of their inheritance due to your unpaid debt. In addition to having a solid will and testament, here are a few other tips for making sure your debt doesn’t burden your loved ones after your passing.

Arrange for assets to pass outside of probate

You might be able to arrange for your assets to pass outside of probate so creditors can't make a claim against your estate to recover outstanding debts. This will ensure your loved ones get their full inheritance. There are several ways to do this, including:

Take out a life insurance policy

If you buy a life insurance policy, the death benefit could pay off your debt so your loved ones are not burdened with it.

This is especially helpful if you have joint mortgage debt with your spouse or other loved ones and you want them to own the house free and clear when you die. You can research the best life insurance to find a policy that provides a death benefit that's large enough to repay the entire balance due.

Gifting your assets before death

If you’ve been given a terminal diagnosis and know that you don’t have much time left, you can start gifting your assets to your loved ones before you die. For example, you can legally transfer ownership of your car, house, and savings accounts so they’re all held in someone else’s name.

When you die, these things won’t be part of your assets and can’t be used to pay off your debts.

FAQs

What debts are forgiven when you die?

Only federal student loan debt — and sometimes private student loan debt — is forgiven when you die. Your estate can be held responsible for repaying all other debt you owe. Cosigners can also be held responsible for payment, as can spouses in community property states.

Do credit card companies know when someone dies?

The executor of the deceased person's estate or the deceased's surviving spouse should alert the credit card company to the death of the account holder. The credit reporting agencies — Equifax, Experian, and TransUnion — should also be notified to prevent identity fraud. The Social Security Administration will notify the credit reporting agencies if your executor or spouse doesn't do so.

Is the wife responsible for a husband's debt after death?

If a wife cosigned or jointly borrowed with her husband, she is responsible for the shared debt after the death of her husband. In community property states, spouses can also be held liable for their spouse's debt acquired during the marriage. They may be required to pay back this debt out of community (shared) property.

Bottom line

In some cases, your debt dies with you. But in many other situations, cosigners or spouses end up responsible for repayment or creditors are able to make a claim against your estate, so the inheritance your loved ones receive is reduced.

But with careful estate planning, including understanding how life insurance works, you might be able to avoid these consequences and ensure your debt doesn't become a burden for your family after your death.

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