Addressing a Loved One’s Debts After They’ve Passed
Debt is a growing reality in the United States, with many Americans expected to pass away while still owing money. Unfortunately, a loved one’s debts don’t simply vanish. While some, like federal student loans, may be forgiven, others—including private loans and cosigned accounts—remain. Common debt includes:
- Mortgages
- Auto loans
- Student loans
- Credit cards
- Personal loans
Debt is a reality many families must confront in the thick of losing a loved one, and therefore it’s important to know your rights and responsibilities.
Debt Responsibilities After a Loved One’s Passing
The fate of a person’s debts after death depends on a combination of factors, including the type of debt and the laws in their state of residence. Typically, the family pays a deceased individual’s creditors from the assets in their estate, such as bank accounts, real estate, or investments. Depending on the estate plan in place, these assets get distributed through probate or a revocable living trust. If the estate does not have enough assets to cover all debts, creditors may be forced to accept partial payment or, in some cases, write off the remaining balance.
Please note that there are exceptions where surviving family members may be held responsible for certain debts. For example, any person who cosigned a loan with the deceased becomes fully responsible for repaying the balance. Further, in California, spouses must cover some debts incurred during the marriage, even if they weren’t directly involved, which in some situations include unpaid medical bills.
Survivors must understand their rights in these scenarios. Importantly, speaking with an estate attorney can help clarify obligations and protect against unfair debt collection practices.
Types of Debt: Secured vs. Unsecured
Handling debt also depends on whether it’s secured or unsecured. Collateral backs secured debt, like a home or car. If the estate cannot cover the debt, lenders can seize the collateral. Importantly, surviving spouses may have some protections to prevent home foreclosure under specific circumstances. On the other hand, unsecured debt includes credit cards and personal loans, not backed by collateral. These debts are typically paid after secured debts if estate funds allow. However, family members are not personally responsible for unsecured debts unless they co-signed the loan or unless they are the spouse and the debt is considered community debt.
Steps for Managing Debts After a Loved One Passes Away
- Understand state & federal protections.
- Consult an attorney before making payments.
- Notify creditors along with financial institutions.
- Gather financial documents and have the death certificate on hand.
- Clarify mortgage and asset obligations.
- Monitor and protect the estate.
- Pay debts in the proper legal order (prioritizing secured debt).
- Review the will or trust for guidance.
- Keep detailed records of all transactions.
Protect Your Family’s Future with Law Stein Anderson
Your legacy is more than what you leave behind—it’s also about avoiding unnecessary burdens for those you love. For this reason, our expert estate planning attorneys are here to help your family prepare for the future. Contact us today to take the next step toward peace of mind.