Debt When Someone Dies: Who Pays and What Heirs Owe

When someone dies, their debts do not disappear, but they are generally paid from the person's estate, not by their family. The FTC says relatives usually do not have to pay a deceased person's debts from their own money, and if the estate cannot cover a debt, it usually goes unpaid. There are exceptions, including cosigned loans and some spouses, and they are listed below.

Who is responsible for a dead person's debts?

The estate is everything the person owned at death: bank accounts, a home, vehicles, investments and belongings. The estate owes the debts, and the executor (or an administrator, if there is no will) pays them from the estate's assets. Our guide on what an executor does explains the role.

The FTC lists the situations where you might owe money personally:

The IRS lists nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. How far spouse liability goes depends on state law, so ask a lawyer if you are a surviving spouse. Depending on your income, you may qualify for free help from a legal aid organization.

In what order are the estate's debts paid?

An executor cannot simply pay bills as they arrive. Each state sets an order of priority, and the order differs. Here are two real examples:

In both states, one class must be paid in full before the next class gets anything, and creditors in the same class share in proportion if the money runs short. California also says that debts owed to the United States that have preference under federal law get that preference.

The IRS adds a warning for federal taxes. If an estate cannot pay all its debts, federal debts must be paid first. The IRS says the representative of an insolvent estate can be personally responsible for the decedent's or estate's tax if they knew about it, or should have found out about it, and paid other debts first.

How do creditors make claims?

The executor tells creditors about the death, and creditors then have a set time to file claims. The windows are short and vary by state:

• California: the later of 4 months after letters are first issued, or 60 days after a creditor is mailed notice (Probate Code 9100).
• Florida: the later of 3 months after the notice to creditors is first published, or 30 days after a creditor is served (Fla. Stat. 733.702). A claim filed late is barred, even if nobody objected, unless the court extends the time on limited grounds.

The U.S. Supreme Court has held that when a creditor is known or reasonably ascertainable, due process requires actual notice, such as by mail, and newspaper notice alone is not enough (Tulsa Professional Collection Services v. Pope, 1988). That is why executors look through the person's mail, statements and credit reports to find every creditor. Our guides on notifying banks, notifying credit card companies and probate in the US show the steps.

How are specific debts treated?

Credit cards and personal loans

These are unsecured debts. They are paid from the estate only if money remains after the higher-priority costs. If the estate has nothing left, the FTC says the debt usually goes unpaid. A cosigner or joint holder still owes the balance. See the table above for authorized users and joint holders.

Mortgages, home equity loans and car loans

These debts are secured by the property. The lender can take the house or car if payments stop, but the lender generally cannot demand the whole loan just because the property passed to a relative. Under the Garn-St Germain Act, a lender cannot enforce a due-on-sale clause on a transfer to a relative resulting from the borrower's death, or on a transfer to a surviving joint tenant. This covers residential property with fewer than five dwelling units. Our guide to mortgages after a death goes further, and selling a house after a death covers the sale route.

Student loans

• Federal loans are discharged when the borrower dies. The same applies to a Direct PLUS loan taken out for a student who dies. The Department of Education accepts a certified death certificate or verification through an approved database, and if payments were received after the date of death, they go back to the borrower's estate.
• Private loans are set by the lender and the contract. Federal law requires a private education loan holder, once told the student borrower has died, to release any cosigner within a reasonable time. The estate may still face a claim from the lender.

Medical bills and Medicaid

Unpaid medical bills are claims against the estate. Federal law also requires states to seek repayment from the estates of certain Medicaid recipients who were 55 or older when they received nursing facility, home and community-based or related care. Recovery generally cannot happen while a surviving spouse is alive, or while there is a surviving child under 21 or a blind or disabled child. States can define the estate more broadly than probate property, so check your state's rules.

Taxes

The IRS says a deceased person's final income tax return is prepared the same way as if they were alive, and the person filing it is responsible for paying any balance due. If a refund is owed, it is claimed with Form 1310. Federal tax debts are among those that get preference, which is why the IRS warns representatives about paying other creditors first.

Funeral bills

Funeral costs usually get a high priority in the estate, but the funeral home's contract is with whoever signs it, so read it before you sign. See our guides on who pays for the funeral, when the estate pays for a funeral and funeral debt collection.

Life insurance and retirement accounts

These pass to the named beneficiary, not through the estate, and the Legal Information Institute notes that nonprobate assets are generally not subject to creditors' claims. State rules vary, though, and the money goes through the estate, and is open to creditors, if the estate itself is the named beneficiary. See our guide to claiming life insurance for the process.

What can debt collectors do?

The FTC says collectors can discuss a deceased person's debts only with the spouse, the parent of a minor child, a legal guardian, a lawyer, the executor, administrator or personal representative who can pay debts from the estate, or a confirmed successor in interest on a mortgage. They cannot discuss the debt with anyone else.

They can usually contact other relatives only once to ask who the representative is, but they cannot discuss the details of the debt with them. They may ask again for updated or corrected information.

If you are someone they can talk to:

• They can't call before 8 a.m. or after 9 p.m. unless you agree.
• They must give you validation information about the debt, including the amount owed and the creditor's name, either on the first call or in writing within five days of first contacting you.
• You can tell them to stop by sending an email or a letter, and the FTC suggests certified mail with a return receipt. A phone call is not enough. Stopping contact does not erase the debt, and they may still pursue the estate.

Report problems to the FTC at ReportFraud.ftc.gov or to your state attorney general.

What to do next

1. Do not pay any of the person's bills from your own money, or agree that you owe a debt, until you know whether you are responsible.
2. Find out who the executor or administrator is. If nobody has been appointed yet, see our guide to probate in the US, and check whether a small estate shortcut applies.
3. Make a list of every creditor from the mail, statements and credit reports, and keep copies of every letter and call.
4. If the estate may have more debt than assets, speak to a probate attorney before paying anyone. Some offer a free first consultation, and legal aid may help if money is tight.