Does a person's debt go away when they die? | Consumer Financial Protection Bureau (2024)

FAQs

Does a person's debt go away when they die? | Consumer Financial Protection Bureau? ›

If there is no money or property left in an estate, or the estate can't pay, then the debt generally goes unpaid. For example, when state law requires the estate to pay survivors first, there might not be any money left over to pay debts.

If there's no money in their estate, the debts will usually go unpaid. For survivors of deceased loved ones, including spouses, you're not responsible for their debts unless you shared legal responsibility for repaying as a co-signer, a joint account holder, or if you fall within another exception.

Most debt will be settled by your estate after you die. In many cases, the assets in your estate can be taken to pay off outstanding debt. Federal student loans are among the only types of debt to be commonly forgiven at death.

Key Takeaways. The government will forgive federal and provincial student loans upon your death. If you have more debts than assets, your creditors may not get the full amount of debt that you owe them.

You do not have to take responsibility for debts owed by a deceased person. You do not need to pay their debt, unless one of the situations below describes you: You are a co-signer on the person's loan. You are a joint account holder on a credit card (not just an “authorized user” on the account)

Unfortunately, credit card debt isn't wiped clean when a cardholder dies. That debt is still owed to the card issuers and must be paid by the estate or remaining signatory on the account.

You are not responsible for your parents' debt. This is true regardless of whether you inherit assets under their estate. However, a parent's estate must settle any debts before you can inherit. And children often share financial responsibilities with aging parents, often medical and housing costs.

You are not responsible for someone else's debt.

When someone dies with an unpaid debt, if the debt needs to be paid, it should be paid from any money or property they left behind according to state law. This is often called their estate.

The law protects people — including family members — from debt collectors who use abusive, unfair, or deceptive practices to try to collect a debt. Debt collectors may not discuss the debts of a deceased person with anyone else.

Both the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) confirm that family members usually do not have to pay the debt of deceased relatives using their personal assets. This includes credit card debt, student loans and more.

Can you use a deceased person's credit card to pay for their funeral? ›

Credit cards of the deceased are no longer valid. They cannot be used under any circ*mstances, even for funerals and final expenses. Transactions on these cards can result in fraud. Even if you're an authorized user or had permission to use the card before the cardmember passed away, do not use them to make purchases.

Do credit card debts die with you? A common misconception is that any credit card debts are automatically written off. Instead, any individual debts must be paid using the money the deceased has left behind. Only if there isn't enough money in the estate may the debt be written off.

In Canada, your debts don't transfer to your beneficiaries after you die. Instead, your estate will settle your outstanding debts using your remaining assets. They would be responsible for taking on your debt obligations only if they are a joint debtor or co-signed or guaranteed a loan contract.

Additional examples of unsecured debt include medical debt and most types of credit card debt. If you die with unsecured debt, repayment becomes the responsibility of your estate. Your legal estate refers to all the assets, property and money left behind by you or another deceased person when they die.

Settling an Estate

Dealing with the death of a relative shouldn't include stress created by letters and telephone calls from creditors insisting on payment. There are laws that protect people from inheriting debt, so if a credit card company solicits payment upon a family member's death, be cautious before paying it.

Most debt isn't inherited by someone else — instead, it passes to the estate. During probate, the executor of the estate typically pays off debts using the estate's assets first, and then they distribute leftover funds according to the deceased's will. However, some states may require that survivors be paid first.

Family members usually are not responsible for a deceased relative's debts, except in situations such as cosigned debts and debts in community property states. Relatives have no legal or moral obligation to pay debts that the estate's assets can't cover, Tayne said.

In Canada, your debts don't transfer to your beneficiaries after you die. Instead, your estate will settle your outstanding debts using your remaining assets. They would be responsible for taking on your debt obligations only if they are a joint debtor or co-signed or guaranteed a loan contract.