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Where does the debt go when someone passes away?

On Behalf of | Dec 16, 2019 | Estate Administration, Uncategorized |

It is a simple fact that most people in America have debt. With any luck they will be able to drive the amount down over the years, but sometimes that is not the case. It is a reality that when a person passes away their debt must go somewhere, and sometimes that somewhere is their loved ones.

When someone passes away all their debts and assets become their “estate”. Probate is then the process in which a person acting on the deceased’s behalf – their executor – settles all their debts. This is what happens when the estate’s assets cannot cover a few key debts.

Probate and settling a person’s estate is often very complicated and time consuming. Speaking to an attorney experienced in estate law is vital to ensuring the process goes smoothly.


If there is a joint homeowner, such as a spouse, then they simply continue to pay their mortgage as usual. If there isn’t, then the executor either sells the home or uses money from the estate to pay off the remaining mortgage. In the event that there is not enough money to pay off the mortgage or the value of the home is less than the mortgage, the mortgage payments fall to whoever inherits the home.

However, it is important to know that just because a person is left something that does not mean they are required to accept it. If you were to inherit a home worth $150,000 home with a $300,000 mortgage, it would be within your rights to walk away and allow the bank to foreclose on the home.

Credit card debt

Because credit card debt is unsecured – not backed up by collateral – credit card companies are generally out of luck if a person’s estate can’t pay. The exception to this rule is when there is a joint account holder. The joint account holder would still be responsible for the debt.

Car loans

Like a mortgage, the estate would try to pay off an existing car loan. If it is unable to, the inheritor of the vehicle would also inherit the loan payments. Should that person not want to extra financial burden, they would have the option to let the dealership reposes the vehicle.

Student loans

Federal student loans are discharged upon a person’s death. Conversely, private student loans will fall to any co-signers. In Texas, surviving spouses will inherit the debt if the loan was taken on during the marriage. Note also that some lenders such as Wells Fargo and Sallie Mae may also forgive private student loans upon death.

It is always painful when a loved one passes away. The challenges are only compounded when a considerable amount of debt enters the picture. When probate is done well, however, family members can come through the ordeal without taking on new financial burdens.