Key Points: 

• Responsibility for debt does not necessarily transfer to family members upon one’s death.
• Debt obligation after death generally goes to the estate, where it’s paid with any assets from the deceased relative.
• One may be responsible for a deceased relative’s debt if he or she is a joint account owner, co-signer on a loan, or a spouse in some cases.

Debt After Death

While the remaining debt of a deceased family member doesn’t go away, the remaining family won’t inherit debt obligation after death in most cases. Instead, responsibility for the debt goes to the deceased’s estate, however specific laws vary by state. The estate executor will be responsible for paying off the deceased’s debt but with the estate’s finances rather than his or her own money.

The estate can fund these bills by liquid funds or also by assets, sold off by the family to cover the debt. If the deceased had life insurance, those funds may also go toward any existing debt. If the deceased relative’s debt cannot be completely covered by the estate, the creditors generally cannot go after the family for the money.

There are some exceptions to these rules and debt relief may be able to ensure a family’s financial security after a relative’s death. Some states do require family members to pay off a deceased relative’s debt. Responsibility for debt may also transfer to a living relative in certain circumstances, including those discussed below. Look into your state’s laws when estate planning to ensure your family is adequately prepared.

Co-signed Loans

Any party who co-signed a loan with the deceased is responsible for any remaining debt. Life insurance can also help cover debt from a co-signed loan, even if one of the signers is still alive. However, some of the life insurance may need to go toward the deceased relative’s debt that isn’t co-signed.

If you are suddenly responsible for the entirety of a loan that you co-signed with the deceased, budgeting may be able to help keep you up-to-date on payments. Create a budget or update your existing budget to include the additional payments.

A good example of this is a mortgage loan. The co-signer is still responsible for the mortgage because he or she signed the loan. He or she will take over the payments after the deceased has passed. If there is no co-signer, the remaining mortgage will be paid off by the estate. Usually, this is done by selling the home.

If a living family member inherits the home, the remaining mortgage payments are not his or her responsibility. However, the loan will need to be paid off by the estate. This may require selling the home to pay off the deceased relative’s debts.

Joint Accounts Upon Death

Any living party on a joint account will be responsible for any existing debt. However, there is a difference between a joint account and being an authorized user on an account. Authorized users may not be responsible for debt accumulated on a deceased person’s account.

If you are unable to cover the entirety of the joint account, you may choose to make more money in order to pay off the debt. This can help in conjunction with the budgeting strategy as you’ll have more income to cover your bills and prevent you from going into debt.

Is a spouse responsible for the deceased’s credit card debt?

As long as the spouse is a joint owner of the credit card, he or she will be responsible for the deceased’s credit card debt. This does not apply to any authorized users on the account, just joint account owners. Children or other relatives with account access but no ownership will not be responsible for the deceased relative’s debt.

If the deceased does not have a spouse, the estate will be used to pay off as much as possible. Anything else will not be paid back to creditors. Any living spouse still has debt relief options, including using life insurance funds if possible, to pay off the existing credit card debt.

ClearOne Advantage can help you get your finances under control by helping you pay off your debt. Call a ClearOne Certified Debt Specialist at 866-481-1597 today to discuss your situation, explore your debt relief options, and get a free savings estimate.

The information provided is for informational purposes only and is not intended to provide financial advice. ClearOne Advantage does not provide financial or legal advice. Please consult a certified financial advisor for individual financial needs.