What happens to debt when you die?
The Consumer Financial Protection Bureau (CFPB) states that spouses, children and other relatives are usually not on the hook for any outstanding debts of a late loved one. A decedent's debt typically gets paid via their estate — that is, any money or property they left behind.
If you die with debt, your estate may first be purged to pay it off. This could affect the beneficiaries of your estate, as they may lose out on some money or assets because of the debts that have to be paid off. Some states, however, require survivors to be paid first.
If there’s no value left in your estate, the debt goes unpaid and no one has to assume responsibility — unless certain criteria are met.
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When you do need to pay off a loved one's debt
The CFPB explains when you would be responsible for a deceased person’s debt. This includes:
- Sharing a joint credit card account with the deceased. This doesn’t apply if you’re an authorized user.
- Being a co-signer on a loan for the deceased, where there’s outstanding debt
- Living in a state where the law requires surviving spouses to pay particular kinds of debt. This is most common in states with community property laws. This means that a surviving spouse must pay the debts of the deceased spouse using jointly-held property, such as a home. States include Alaska (if a special agreement is signed), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In certain states, this also applies if you’re the executor or administrator of the deceased’s estate.
- Being the executor or administrator of the deceased’s estate, but only in states that require executors or administrators to pay off debt from property jointly owned by the surviving and deceased spouses.
If any creditors come calling, keep all of this in mind. They're not allowed to coerce you into paying off debts for which you're not responsible.
How to prepare for your loved one’s death
Though you may not be at huge risk to pay off a loved one’s bills after their death, it’s still worth talking about beforehand if possible. Only 32% of Americans have an estate plan, according to Caring.com’s 2024 Wills and Estate Planning Study.
Personal finance expert Dave Ramsey emphasizes the importance of getting your estate in order way ahead of time.
“If you hate the people in your family, leave unclear instructions and no will,” he once said on “The Ramsey Show.”
He added: “They will all fight [for] the rest of their lives over your crap.”
One way to prevent loved ones from having to deal with large debts is to have life insurance. A policy can cover any shared debt so that no one has to shell out their own money and hurt their own finances.
Make your home work harder for you by making the most of your equity.
The average homeowner sits on roughly $311,000 in equity as of the third quarter of 2024, according to CoreLogic. Having access to your home equity could help to cover unexpected expenses, fund a major purchase like a home renovation or supplement income from your retirement nest egg.
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