Can You Inherit Debt? [Details, Instructions, & Solutions]

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The loss of a loved one can be heartbreaking, and adding an extra concern because you are afraid that their debts will pass on to you only rubs salt into the wound. We’re here to clarify this difficult topic and give you an overview of the possible scenarios.

Keep reading to find out:

  • when and how you can inherit debt
  • how to deal with persistent debt collectors

If this has already happened to you or you are struggling to pay out your own debt, there are ways to get out of it.

Can You Inherit Debt?

Debt can have an influence on your inheritance, but the exact situation can depend on many factors, such as whether you’re a co-signer of the loan or have a joint account. It can also depend on the rules of the state you live in. Keep in mind, however, that debt inheritance is a very rare occurrence.

In most cases, the state takes care of a deceased person’s debt by seizing some of their estate and their estate’s assets. This is called the probate process, and the assets that are eligible for seizure are called probate assets. Some examples of possible probate assets are:

  • Vehicle
  • Bank account
  • Investments
  • Real estate
  • Personal belongings

How Does the Probate Process Work?

The deceased’s family members don’t inherit their debts, but the probate process makes sure the debts are taken care of. The process begins with a petition filed to the probate court. After the petition has been approved, assessment is done of all probate assets of the deceased person, and the executor of the estate takes legal control of them. The executor then uses the seized funds to pay off any debts. When there is no more money left, the probate assets are used to settle any remaining debts.

After all the debts are paid, the remaining assets are distributed according to the will. However, if there is still debt remaining after all assets have been sold, the rest of the debt is written off. Briefly summarized, that’s what happens to debt when someone dies.

On the other hand, non-probate assets aren’t a part of the probate process and can’t be used to pay off debt – these assets are distributed among the heirs. Here is what is usually considered non-probate assets:

  • Retirement accounts
  • Life insurance accounts
  • Assets held in trust
  • Joint brokerage accounts or bank accounts
  • Properties with a named beneficiary

What Happens When a Person’s Estate Can’t Pay Their Debt?

Frequently people accumulate so much debt throughout their lifetime that their estate isn’t enough to pay off all of it. A few scenarios are where debts after the death of a loved one with no estate are concerned.

If any of the deceased debtor’s loans were co-signed or another person had a joint account with them, then the responsibility for paying off the debt remains on the surviving debtor.

If the deceased debtor had any remaining secured debts, such as a mortgage or auto loan, the assets might be seized by the creditors if there are no remaining funds to cover the debt. In such cases, the heirs have the option to choose to “inherit the debts” and keep repaying them if they want to keep the assets.

What’s the Order of Debt Settlement?

No matter what their value, all available probate assets will be used to cover the debt. There is a select priority list for debts that need to be repaid. All debts are ticked off one by one according to their priority level until the assets run out. In case the assets run out before covering all debt, the debt for the remaining items is usually waived.

The payment priorities differ for each state, but most of them follow this list in different order to distribute the assets and prevent family members from inheriting debt:

  • Administrative costs are usually first in line. These include all the costs of administering the probate process.
  • Next in line are payments made to the family, so they are taken care of financially during the probate of the estate.
  • Third on the priority list are the burial and funeral costs.
  • Then, government debts in the form of various taxes are settled.
  • Next come any unpaid medical bills if the deceased debtor was treated for an illness or injury.
  • After all previous issues have been dealt with, all other debts are settled with the remaining assets, usually mortgages coming first. Any credit card debt left after death usually comes at the end of the list.

In situations when a person doesn’t leave behind any probate assets, creditors have no way of settling their debt and may request permission to seize their non-probate assets. This happens rarely but is more likely to occur if the amount of leftover debt is significant.

Otherwise, if the value of a deceased debtor’s estate isn’t enough to pay off their loans, the remaining loans are waived. All non-probate assets are left to the heirs.

Can You Inherit Debt from Your Parents?

Unless you have a joint account with your parents or you are a co-signer for their loan(s), their debt can’t be passed on to you.

Upon their death, the probate process is initiated to cover any debt they may have accumulated over the years. You may not inherit their debt, but you will most likely inherit any assets that survive the probate process as well as their non-probate assets. However, the more assets are used for debt repayment, the smaller your inheritance will be.

There is one point that needs to be mentioned about medical debt, though. In case the parents have no funds to pay for medical treatment, their adult children are held accountable for financing their care due to special filial responsibility laws that are enforced in some US states. This includes covering their medical bills as well as inheriting any medical debts that may be left over.

States that enforce filial responsibility laws are:

Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Kentucky, Louisiana, Massachusetts, Mississippi, Montana, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, and West Virginia.

Is a Spouse Responsible for the Credit Card Debt of a Deceased Spouse?

No, spouses are generally not responsible for each other’s debt. However, if they have joint accounts or have co-signed a loan, the debt will be left up to the surviving spouse to repay. This includes any credit card debt left after the death of the spouse as well as all other loan types that both spouses have participated in.

Note, however, that this doesn’t apply for all US states. Some states have special laws for this, called community property laws. These laws consider all debt accumulated during a marriage a shared responsibility of both spouses, even if only one spouse has taken out a loan as an individual. This means that the debt remains the responsibility of the surviving spouse. Even if this is the case, the surviving spouse is only responsible for the spouse’s debt incurred during the marriage. Any loans taken out outside of the marriage conform to the standard rules of debt inheritance.

The states that adhere to community property laws are:

  • California
  • Idaho
  • Nevada
  • New Mexico
  • Louisiana
  • Texas
  • Arizona
  • Washington
  • Wisconsin

You always have the option to try and get the debt discharged by appealing during the probate process.

Suppose the community property law has affected you, and you are struggling with repaying the debt. In that case, we recommend taking out a debt consolidation loan to help you manage your inherited debt better.

What To Do In Case Debt Collectors Are Chasing You for Payment?

Debt collectors can often be merciless and lack compassion for the grieving family. They often start making calls and pestering the family members of the deceased debtors to start paying their debts even though in most cases this is not their responsibility.

It’s important that you don’t let debt collectors scare you into paying for something you shouldn’t be paying for. The inheritance of debt is rare, so it’s more than likely that you don’t owe them anything.

First things first – don’t let yourself be intimidated or pressured into paying anything. Don’t accept any responsibility and only ask them for more information. Make no promises or any small payments; doing this would mean that you acknowledge the debt.

In order to be absolutely sure you haven’t inherited any debt, the next thing you should do is make sure you ask for written verification of the debt. After receiving this, look through it with the executor or an attorney to deny your involvement with the debt.

If you get a written confirmation that you aren’t supposed to pay anything, the next step is to ask the debt collectors not to contact you anymore by sending them a certified letter. After that, the only legal reason they can contact you is to inform you that they won’t contact you anymore or to inform you of a pending lawsuit.

Inheriting Debt Doesn’t Happen Often

Although inheritance of debt can be a scary prospect, it doesn’t actually happen as often as you may think. The most common scenario in which you inherit the debt of a deceased person is when you have shared that debt even when they were alive. Even in those cases, there are exceptions that can be used to make your repayment process easier and faster.

Make sure you are informed of your rights and responsibilities and use that to deflect any persistent debt collectors that might try to profit from your vulnerability and ignorance.

So, to finish off – can you inherit debt? Yes, it’s possible. But is it likely? Not really.

FAQ

Is a spouse responsible for the credit card debt of a deceased spouse?

Usually, this won’t be the case, but there are certain exceptions. Some US states have special community property laws that basically make all debts shared for spouses. This means that whatever loans you have taken out during your marriage, your spouse will be responsible for paying them after your death.

Are children responsible for their parents’ debt?

No. Children aren’t responsible for any of their parent’s debt unless they have taken out a joint loan by co-signing together. Another reason the children could be responsible for the debt of their parents would be due to filial responsibility laws in some US states.

What happens to a mortgage when someone dies?

If the deceased debtor had a joint mortgage with another family member, the debt is transferred to that person. Otherwise, the executor uses any probate assets to cover the mortgage, and the property may even get claimed by the state. Family members can opt to take over the mortgage if they want to keep the property.

What happens to credit card debt after death?

The credit card debt will be covered during the probate process. If the debtor has insufficient or no probate assets to cover their credit card debt, it will be waived and won’t normally pass on to their children or spouse.

How to deal with inherited debt?

Depending on the size of the debt you’ve inherited, you have a few options. You may consider rearranging your finances, taking on an extra job, or taking out a loan to cover the expenses. If the debt amount is overwhelming, you may even consider filing for bankruptcy, though there are ways to avoid one.

Can you inherit debt from people who aren’t your family?

The only situation in which you would inherit debts from a non-family member is if you took out a loan as co-signers or have a joint account. Otherwise, it’s impossible to inherit debt from a person that’s not your parent or spouse.

ABOUT AUTHOR

My eyes rarely take a break from staring at my laptop's screen—I am Big Brother, scanning the web for news and information worth sharing. Full transparency—a substantial chunk of my screentime is also dedicated to watching TV shows, but balance is key, right? Writing is how I choose to share my findings with the world while keeping my love of language and creativity alive.

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2 Comments

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