There are many cases when someone must face this question, and while none of these situations are pleasant, it’s better to be informed than not. It’s no longer uncommon for parents to die indebted, with more debt than assets. And couples often start partnered life with debt, meaning the death of a partner can raise complications for their loved one in addition to coping with grief and loss. Whether it’s student loans, medical debt, mortgages, or credit card debt, it’s important to know what the law says.
Can I Inherit Debt from My Parents?
The good news is that you can’t inherit debt that isn’t yours. However, if you have a joint account with your deceased parent, which you have co-signed for, then you become responsible for that debt. So for example, if you signed for a credit card jointly with your mom, and she dies, you are on the account, and you have agreed to take responsibility for that debt.
If you aren’t on the account, though, you don’t inherit the debt. Instead, the debt is paid off with assets from the estate. In cases where there are unpaid debts when your parents die, the executor of the will sells any assets, and the proceeds are used to pay off debts. Secured debts (mortgage, car) are discharged first, and unsecured debts, like credit cards, are tackled next.
When the money runs out, some creditors might have to take the loss. You don’t inherit debt that you don’t jointly own, but it might significantly reduce what you actually end up with in terms of an inheritance.
What Happens to Credit Card Debt When You Die?
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Really, it depends on who has signed for it. Joint debt becomes the responsibility of the surviving account owner. However, if you are the sole account owner, your estate is responsible for the debt. Credit card issuers do have to notify executors quickly of how much is owed, and they can’t keep adding fees and penalties during the time the estate is settled.
One exception to be
aware of is that in community property states, the rule that a single account owner is solely responsible for the debt gets a little murky. In those states, the account may still be considered joint, even if you are the only name on it. Check your state law to determine what happens.
Another thing to keep in mind is that “authorized users” who aren’t joint account holders are not responsible for the debt. So don’t let an issuer bully you into taking responsibility.
What Happens to Student Loan Debt When You Die?
With private student loans, the situation depends on whether or not there was a co-signer. Co-signers are usually responsible for any debt after the loan holder dies. However, federal student loans come with a little more leniency: the debt is discharged, and the estate doesn’t have to repay the loans.
What Happens to Medical Debt When You Die?
Once again, it’s all about who has signed for the debt. However, there are differences, state-to-state, about what happens to medical debt. If the debt is joint medical debt, the survivor becomes responsible in many cases. If the debt isn’t joint (except in community property states) it reverts to the estate to be covered by any assets. In some cases, some medical facilities might choose to negotiate with you to reduce the debt, so it’s always good to inquire about this.
What Happens to Mortgage Debt When You Die?
As always, the answer to this question depends on who has taken on the debt. If it is shared debt, or co-signed debt, the survivor is responsible. If only the deceased is on the loan, the mortgage debt is settled by the estate. Because a mortgage is secured debt, it usually gets first billing for pay off when the estate is settled.
No one wants to face a situation where they have to deal with losing someone they care about. It’s only made worse if debt is involved. Hopefully, having information can help in some cases to make the situation a bit easier. Just remember that what happens to debt after you die depends on who has signed for it, as well as the laws in your individual state. It’s always a good idea to talk to an estate attorney and get an expert opinion regarding your specific situation.