Settling the affairs of a loved one who has passed on can be difficult. Family members are often left to make important financial decisions on behalf of their deceased relative during this already emotional time. These decisions often involve whether to repay any debts owed by the debtor after death – including credit card debt, student loan debt, mortgage loans, and other financial obligations. Relatives, however, are generally not responsible for paying the debts of the deceased – and creditors are sometimes left to swallow the cost of the debt, despite creditors who would make you believe it is your obligation to repay the debt.
Are You Responsible for the Debts of a Deceased Relative?
From an estate administration perspective, debts after death are generally repaid through a person’s estate – whether or not there was a will – and relatives are not responsible for paying off debts that were not jointly owned at the time of the debtor’s death.
When a person dies, his debts often die along with him. Whether you are responsible for repaying the debts of a deceased relative depends on whether you owned any part of the debt at the time of the debtor’s death, or have received substantial benefits from the debt itself (as in the case of a loan used to pay your personal living expenses.)
Credit Card Debt After Death
Credit card debts belong to the credit card account holder and relatives should not have to pay for their deceased family member’s debts unless they co-signed on the loan or it is a debt from a joint account. However, those who live in community property states, where property and assets acquired during a marriage are considered jointly owned, may be liable for the debt.
Therefore, creditors are often out of luck when there is not enough money in a decedent’s estate to go around. Even so, creditors will often go to grave lengths to collect any and all debts owed to them -- even from the deceased – through requests from spouses and relatives. Payments on behalf of a deceased relative, however, are voluntary, not required.
For relatives seeking to get an accounting of debts owed by the decedent after death, executors of an estate can request credit card balances of the deceased’s account. Under a provision of the new CARD Act, the issuer has 30 days to provide the balances and can’t charge any penalty fees or interest if you or the estate pays off the balance within 30 days after it provides that information.
If a person believes they are being unfairly contacted, or even harassed, by overzealous debt collectors, it may be wise to speak with a local debtor - creditor attorney to help you determine your rights under your state’s law.
Mortgage After Debt
Similar to credit card debt after death, mortgage debt belongs to the borrower of the mortgage loan. If a spouse was named as a joint owner on the loan, then he or she would be liable for the loan debt after the death of the debtor spouse.
Just as with the deceased’s unsecured debts, a note associated with a mortgage is not forgiven simply because the borrower dies. Instead, the surviving spouse can decide whether to continue to make payments on the note – and thereby continue to live in the home – or sale the house to pay off the existing loan.
Life Insurance Policies
Life insurance policies are not part of the estate, and proceeds from life insurance policies go directly to the named beneficiary. Beneficiaries are therefore not obligated to use the proceeds to pay for any remaining debts the debtor may have after death.
Talk to an Attorney to Learn More About Debts After Death
Don't wait until a critical moment to figure out your estate plan. You should have a good grasp of the laws and how they'll impact your family should anything happen to you. Speak with an estate planning attorney in your area to learn more about life insurance policies, credit card debt, and more.