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Who pays off debts when a person passes away?

If you are like millions of other Americans, you have some debt. You might have credit card debts, student loans to repay or a mortgage and car to pay off. If you have these and other debts when you pass away, they won't just disappear, so it is important to know what happens to debt after a person's death.

Below, we examine a few important details about which debts get paid and who will be responsible for paying them.

Different types of debt

There are two major types of debt: secured and unsecured. Secured debts include mortgages and car loans, while unsecured debts include credit card debt.

After someone passes away and during the probate process, the estate will pay off secured debts first. If there is enough money left, the estate will then pay off unsecured debt amounts. If there is not enough money, the debts may not be paid or loved ones could be responsible for repayment.

There are some loans that are forgiven when someone dies, including federal student loans.

Where the money comes from

The personal representative of an estate will pay off debts using the money and other assets in a person's estate. This could involve selling property and using money the decedent may have wanted to go to loved ones.

In some cases, another person could be on the hook for paying off the debt. As discussed in this article, this might include: 

  • Joint account holders
  • Co-signers of a loan
  • People who live in the decedent's home or inherit the home
  • The decedent's spouse (in community property states, which does not include Florida)

Accounting for debt in an estate plan

The fact that debt does not just disappear when someone dies is crucial to understand if you are creating or updating an estate plan. It can allow you to do some planning to protect certain assets and your loved ones from having to take on debt obligations.

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Peter J. Snyder, P.A.

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