Who Pays When Loved Ones Leave Debt Behind?


Losing a loved one — a parent, spouse, or sibling — is difficult enough. But what if your loved one left mortgage, auto loan, or credit card debt behind? Will you now be responsible for paying those bills?

In most cases, no. Creditors can't force you to cover the unpaid debts of loved ones who have died. But the money that your loved ones owed might cut into or even eliminate any inheritance that was meant for you or other survivors.

What usually happens

When people die, the money they owe creditors — everyone from their mortgage lender, to their auto loan providers, to their credit card companies — is collected from their estate. The estate in this case is defined as the money and assets owned solely by the deceased.

This might mean that the house your parents owned has to be sold to pay off any mortgage debt they owed. Their car might have to be sold to pay off credit card or other debts.

Whatever is left after these debts are paid off remains in the estate of the deceased. If your parents wanted to leave money behind for their children and grandchildren, the amount they wanted to bestow will be reduced by however much they owed creditors at the time of their death.

It can get more complicated

Of course, that's the most basic course of action. In reality, money matters can get more complicated after the death of a loved one.

This is especially true when you lose a spouse. In most states, you won't be responsible for any debt that your spouse left behind when he or she died, as long as the debt was accrued in your spouse's name alone. If both you and your spouse share a credit card or a mortgage, then you will be responsible for making payments on that debt after your spouse dies.

If you live in what is known as a community property state, you will be responsible for even more debt. In such states, the debts of deceased people are passed onto surviving spouses, even if the debt is not in the survivor's name. If your spouse took out a loan to buy a motorcycle and didn't finish paying it off before dying, you'd be responsible for paying off that loan.

There are only 10 states that have community property laws: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in any other state, you are not responsible for debt run up in your spouse's name alone.

Co-signing presents another complication. If you co-signed on a loan with anyone, you will have to pay off the debt left behind when they die. Say your sibling dies, but before that tragedy, you co-signed their auto loan. You will now be responsible for paying off that loan.

Mortgage debt

Different types of debt come with different issues. Mortgage debt left behind can be one of the most complicated.

Surviving children or siblings aren't personally responsible for the mortgage debt left behind by their loved ones. But it still needs to be paid off. Otherwise, the bank will sell the home to pay off the unpaid mortgage debt.

This can be problematic if parents wanted to leave their home to their kids. If your parents leave their home to you, and they still owed money on their mortgage at the time of their death, you can take possession of the home. But you must make the monthly mortgage payments. If you don't want or can't afford to do this, you'll have to sell the home.

If your spouse dies and you still owe on your mortgage loan, you'll have to continue making monthly payments if the loan was in both your name and your spouse's. If it wasn't, you'll have to take over the payments if you want to keep the house.

Credit card debt

Credit card debt is never passed on to surviving family members whose names are not on the credit card account. When your loved ones die, this debt will be paid off from their estate. If there is not enough money in the estate, the credit card company is out of luck.

Some debt collectors might try to convince you that you are responsible for the credit card debt of a deceased loved one. Don't fall for this. If your name is not on the account, you are under no legal responsibility to pay off this debt.

That goes for authorized users, too. Authorized users are never liable for the debt charged to a card, even if they made those charges before the person's death. Do not continue making charges on the account, though, or you could be held liable.

Finally, if you shared a joint credit card account, the debt on that card becomes your responsibility. You must continue making payments on it.

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