Dying with Debt – Who Is on the Hook to Pay It Back?

Debt is something many American grapple with. In fact, the average U.S. household with credit card debt carries close to $7,000 in revolving balances, or balances carried from one month to the next, according to NerdWallet.

Given the prevalence of debt in our society, an important question needs to be answered: “If you die with an outstanding debt (whether it be a credit card, personal loan, student loan, mortgage, etc.) who or what will be responsible for paying it back?”

The laws pertaining to debt after death vary by state so there isn’t a single answer to this question. Nevertheless, in general, people do not inherit a loved one’s debt. For example, a son or daughter would not be responsible for the debt of a parent, unless they cosigned a loan. An exception to this general principle is in states that have “filial responsibility” laws related to children of aging seniors.

Can I Just Run Up My Balances Before Passing Away and Leave the Credit Card Company with the Bill?

When someone learns that their children may not be on the hook to repay their debts, they think, “well, I guess this means I can spend like a drunken sailor before I pass on.” Not exactly. Your estate is responsible for paying off any balances you owed upon your passing. If your estate goes through probate, the administrator or executor will look at the debts and assets and, guided by the laws of that state, determine in what order the bills should be paid. The remaining assets will be distributed to the heirs according to a will or state distribution laws if no will exists.

Generally, all debts must first be paid by the estate before any remaining assets are distributed to the heirs. An outstanding credit card balance, for example, must be paid before any money or gifts can be distributed to an heir. If there are not enough assets to pay the debts, then all assets and property will be sold to pay down as much of the debt as possible and the heirs will inherit nothing.

Except for certain situations which include joint property or joint debt, creditors typically won’t go after surviving family members when a debt cannot be paid out of the estate under probate.

Secured Debt

If a loan was secured with collateral such as property or another asset, you should expect a creditor to pursue that collateral if the debt is not repaid. However, you may be able to keep the collateralized asset if you are willing to assume your deceased loved one’s debt.

Unique Laws in Community Property States

In community property states, such as California, married couples are considered to own their property, assets, and income jointly. In fact, credit accounts opened during marriage are automatically considered to be joint accounts. This may affect what a surviving spouse will have to pay, depending on the debt incurred by the deceased spouse.

The majority of married couples have joint accounts and joint debt. In these situations, a surviving spouse will be held legally responsible for the debt of their deceased spouse, even if they did not incur the debt themselves.

Filial Responsibility Laws

Filial Support (or Responsibility) laws establish a duty for adult children to take care of their indigent parents, meaning that the child may be required to pay for bills accumulated by parents for nursing homes and other form of elder care. Filial Responsibility laws are on the books in 30 states. Nevertheless, they have historically been seldom enforced and lawsuits citing filial responsibility often fail. Furthermore, filial support laws are not a major issue in the DMV. Maryland repealed its filial support laws in 2017. The District of Columbia does not have a filial support law on the books. Virginia has a filial support law on the books but, as mentioned, it is rarely enforced thus far. That does not mean the policy could change in the future. Proper planning can protect most from being blindsided by these debts.