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.
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.