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What Happens To Debt After The Debtor Dies?

Last updated 2 years ago

A common misconception among people is that when a debtor deceases, the debt passes with them. While this is the case in a few, select situations, more often than not, the debt remains until it has been successfully repaid. Are you unsure about what happens to a deceased individual’s debt? If so, then have a look at the following basics of how this process works.

  • Unsecured Debts

Unsecured debts, such as your credit card or medical bills, remain after a debtor has deceased. When the executor of your estate takes control of the property, the estate then goes through what is called probate. In this process, debt will be paid off with the remaining assets that are left for distribution. If the estate cannot cover the debt, then the credit card companies will often absorb the debt.

  • Secured Debts

Secured debts, such as your house and vehicle, will go to paying off your unsecured debts. However, if a house is designated to someone in a will, then the debts will often transfer to the new owner of the property.

  • Joint Accounts

If the debtor had a joint account with someone where each had full access to the account, then the debt will then transfer to the other name on the account in full.

  • Community Property States

There are several states that are known as community property states. In these states, if the debtor is married and the spouse is still living, then the debt is likely transferred to the living spouse, who is then responsible for repayment.

The passing of a relative or loved one is always difficult, particularly if they struggled with large amounts of debt towards the end.  After death, once debt travels through the appropriate channels, the new party can settle the balance and restore balanced to the deceased’s estate.

 

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