What Happens to Your Debt After You Die?

By Damian Davila on 28 July 2016 2 comments

"In this world nothing can be said to be certain, except death and taxes," wrote Benjamin Franklin back in 1789. However, more and more Americans are including "debt" in that famous quote. In 2015, one poll found that 21% of Americans believed that they would be in debt forever, up from 9% in 2013 and 18% in 2014. But what happens to that debt when you die? The answers may surprise you.

First — What Is an Estate?

Your estate includes all of your assets, including real estate, investments, insurance, and any other assets or entitlements. Since your debts and liabilities are also part of your estate, qualifying assets are liquidated upon your death to cover your debts before your beneficiaries can see any funds.

Establishing a clear will is key to ensuring your estate is managed as you wish. Even when a will is available, executing an estate and administering a will is serious business. So, it's best to hire a legal professional to cross all t's and dot all i's. (See also: Don't Get Screwed: 3 Surprising Times When You Need a Lawyer)

So, what happens to the debts in your estate?

Credit Card Debt

Recent estimates put average American household credit card debt at $15,762, for those households with credit card debt. But unless your family or friends co-signed a credit card with you, they're all off the hook in the event that you pass away and your estate is too small to cover it. Even when your spouse is an authorized user on your credit card account, they won't be responsible for paying if they didn't cosign at the time of application.

However, your survivors shouldn't be surprised if debt collectors still try to get a spouse or child to pay for the debt. The federal Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from using abusive, unfair, or deceptive practices to try to collect a debt. Let your spouse, children, and beneficiaries know that they can file a complaint against abusive debt collectors with the Federal Trade Commission (FTC). (See also: 4 Annoying Things Bill Collectors Can't Do — And How to Stop Them)

Of course, you and your family still need to refrain from tricky tactics, such as taking a $20,000 cash advance days before a death, or continuing to use the authorized credit card after the primary cardholder has died, that could provide a credit card company recourse to legally pass on the debt to the surviving relatives.


There are three main scenarios to consider with a mortgage.

In the first, you were either required by the company issuing your mortgage or decided that it was a good idea to buy life insurance for the remaining balance of the mortgage. In this scenario, your death benefit clears the mortgage and the property goes to the beneficiary listed on the will or to the surviving property owner.

In the second, there is no life insurance, and you and your spouse were "tenants in common," meaning that each of you owned a stated share of the property. To be eligible to receive their share of the property, your spouse would need to first check that there is enough money in your estate to clear your debts and thus no need to sell the property to cover them. If there is enough money in your estate, your spouse would receive your share and take over the mortgage, if applicable.

Finally, there are scenarios in which there was no life insurance and you and your spouse were "joint tenants," meaning that both of you owned the entire property. In this scenario, upon your death the whole property passes automatically to your spouse. But again, the estate must clear any property-related debt first.

Student Loans

Besides credit card debt, student loans are another type of liability that is rapidly increasing among Americans. According to one estimate, the average student loan for a Class of 2016 graduate is $37,173!

In the event of your death, your federal student loans, including direct loans, Federal Family Education Loan (FFEL) Program Loans, and Perkins Loans, will be discharged. Additionally, Direct PLUS loans are discharged in the event that the parent or student on whose behalf the loan was obtained passes away.

But private loans are another matter, and your estate may be responsible for covering any balance. And if anybody co-signed a private loan with you, they'd be on the hook for payment.

To learn more about what would happen to your liabilities upon your death, consult a lawyer.

Have you ever take on debts from somebody that passed away? Share your experience in the comments below.

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Guest's picture
Nick Vail

This is great information. I recently read that 52% of Americans are spending more than they earn. We keep racking up more and more debt, and in many cases, someone else will be on the hook for it!

Damian Davila's picture

It's a very troubling statistic indeed, Nick! On the one hand, friends and relatives co-signing credit cards and loans are very willing to provide a lending hand, and on the other, those co-signers should be aware of the consequences of a co-signer acting very irresponsibly.