What Happens To Debts When Someone Dies

March 4, 2019
Written on behalf of Daniel H. Chambers Attorney at Law, P .C.

When someone passes away, they will likely have some type of debt that they were currently paying off. Here’s what happens to someone’s debt after a death.

First: the estate

The day someone dies, their cash, bank accounts, property and belongings become the estate. This is a term to lump together everything that (1) is given to family members, friends, or organizations, and (2) can be used to repay debts after someone passes away.

There are a handful of debts that are wiped clean on the day of the death and some that still need to be repaid (or else the house or car that was being paid for will be taken away).

Usually, all debts are repaid from the estate first and then the inheritors get their share of everything left over (depending on the will). If assets from the estate are distributed before the debts are paid, the inheritors may have to pay from their share of the assets.

House mortgage payments

If someone else owns the house, the mortgage payments continue as normal

If the house is left to someone, they must pay the mortgage. They can also sell the house

If not, the bank that issued the mortgage will take the house.

Property rent

Rented housing (apartment, house, townhome, etc.) is always paid ahead of time (a monthly payment on May 31 pays for all of June), so debt usually isn’t an issue.

The only exception is if there are damages (that aren’t covered by security deposits). These damage payments may be covered by the estate, but not by the beneficiaries.

Auto loans

Auto loans work the same way as a house mortgage: if there’s a co-signer, they’re responsible for paying the bills. If not, the loan lender can take the car.

Utilities

Since utilities—like rented housing—are paid ahead of time, they’re usually not a big issue.

If no one is living in the house or apartment, you can call and cancel internet, electricity, water and garbage services as soon as the day of the death (but if you’re planning on being in the home at any point, you may want lights and a working toilet).

Credit card debt

Any credit card payments must be paid only if there is enough value in the deceased’s assets to cover the costs. If there was a co-signer on the credit card, they are responsible for the payments.

Warning: Credit card companies may try to ask the inheritors for repayment, but they are not required to repay.

Student loans

Federal Student loans do not need to be repaid. Occasionally, in the event of the death of the student’s parents, the loans may not need to be repaid. (This depends on the details of the student loans and living situation.)

Private student loans may need to be repaid, and spouses and co-signers may be responsible.

Taxes

Taxes need to be repaid. Income taxes need to be paid based on the deceased’s last tax return in addition to income earned after death.

Hire a lawyer to help

Debt laws vary from state to state, and the details can become overwhelming. If you’re unsure how to handle the debt of a deceased family member or friend, hire a lawyer. They’ll be able to help walk you through the process.

This blog post should not be taken as official legal advice. Comprehensive estate planning that is customized to your particular circumstances demands the efforts of a skilled estate planning attorney with years of experience helping individuals and families prepare for their futures.

Attorney Daniel H. Chambers has dedicated his career to helping clients successfully resolve their various family law and estate planning issues. He understands that comprehensive estate planning for can be a difficult and overwhelming process and is personally available to answer any questions or concerns you may have throughout the process.

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