What Happens to Debt After Death? A Guide for Families

Debt generally doesn’t transfer directly to surviving family members, but it must be addressed through the deceased person’s estate. Nearly half of Americans expect to pass leaving unpaid debts.¹ Understanding what happens to debt after death is crucial for proper estate planning.

One Nation, Under Debt

Debt is as old as civilization itself. Lending at interest can be traced back to ancient Mesopotamia and the use of promissory notes to facilitate trade. The United States has carried debt since its inception, borrowing money from domestic investors and the French government to fund the Revolutionary War.² 

Total consumer debt eclipsed $17 trillion in 2023, up from $15 trillion in 2021, according to credit reporting agency Experian.³  The largest and most common debts include:

• mortgages ($11.5 trillion in 2023),
• auto loans ($1.51 trillion),
• student loans ($1.47 trillion),
• credit cards ($1.07 trillion), and
• personal loans ($571 billion).⁴

The total average individual debt balance in 2023 was $104,215, up from $101,915 in 2022 and $96,371 in 2021.⁵ According to Debt.org, 73 percent of Americans die owing money.⁶  The average amount of debt they die with is nearly $62,000.⁷

Here’s what you need to know:

1. Secured vs. Unsecured Debt:

• Secured Debt: Backed by collateral, such as mortgages or car loans. Lenders may repossess the collateral if debts aren’t paid.
• Unsecured Debt: Includes credit card debt and personal loans. These debts are lower priority and may not be fully repaid if the estate lacks funds.

By way of example, federal student loans, including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct Consolidation Loans, Federal Family Education Loans, and Federal Perkins Loans, are usually discharged when the borrower dies, as long as the loan servicer receives proof of death.⁸

2. Estate Assets

Creditors are paid from the estate’s assets during probate. If the estate doesn’t have enough to cover debts, creditors may not recover the full amount.

3. Exceptions:

Family members may be responsible for debts if:

• They co-signed a loan.
• They live in a community property state (e.g., California, Texas).
• State laws require payment for specific debts, like medical bills.

4. Priority of Payments:

• Funeral expenses, taxes, and probate administration costs often take precedence over other debts.
• Personal representatives must follow state laws to pay creditors in the correct order, or they risk personal liability.

How to Protect Yourself and Your Loved Ones

1. Plan Ahead for Debt

• Pay Down Debts: Reduce outstanding balances to simplify estate administration.
• Communicate with Creditors: Understand which debts may affect your estate and explore repayment options.

2. Understand Rights and Obligations

• Surviving family members aren’t automatically responsible for debts unless they co-signed or are legally obligated. It is important to understand what happens to debt after death.
• Debt Collectors: Federal laws restrict how and whom debt collectors can contact. Speak with a probate lawyer before making payments.

3. Work with an Estate Planning Attorney

• Properly designate beneficiaries to ensure some assets bypass probate and aren’t used to settle debts.
• Seek guidance on how state laws may affect your estate or inherited debts.

4. Be Prepared for Inheritance with Debt

Do you know what happens to debt after the death of a loved one? Inheritances like homes or vehicles may come with outstanding loans. Beneficiaries can:

• Assume the loan (if permitted by law).
• Sell the asset to repay the debt.
• Decline the inheritance if they cannot afford the obligations.

Key Facts About Common Debts

• Federal Student Loans: Typically forgiven upon death.
• Private Student Loans: May seek repayment from the estate or a co-signer.
• Mortgages: Beneficiaries inherit the property with the loan attached. This means the lienholder or mortgage company can go after the property after death of the previous owner.
• Credit Cards: Unsecured creditors are paid after secured debts during probate, if funds remain.

Navigating Debt After a Loved One’s Death

If you’re managing a deceased loved one’s debts, remember:

• Don’t rush to pay creditors—speak with a probate attorney first.
• Personal representatives must follow state laws to prioritize debts and avoid personal liability.
• Consult professionals to ensure compliance and protect the estate’s remaining assets.

We Can Help

Estate planning is about leaving a legacy, not a financial burden. Whether you’re planning your own estate or handling a loved one’s debts, our experienced attorneys can guide you through the process. Contact us today to ensure your family is protected and prepared.

1. Myles Ma, SPFC, 46% of Americans expect to pass on debt to their loved ones when they die, Policygenius (Jan. 9, 2024), https://www.policygenius.com/life-insurance/2024-financial-planning-survey-passing-on-debt-after-death. ↩︎
2. FiscalData, https://fiscaldata.treasury.gov/americas-finance-guide/national-debt. ↩︎
3. Chris Horymski, Experian Study: Average U.S. Consumer Debt and Statistics, Experian (Feb. 14, 2024), https://www.experian.com/blogs/ask-experian/research/consumer-debt-study/#s3. ↩︎
4. Id. ↩︎
5. Id. ↩︎
6. Bill Fay, What Happens When People Die with Debt: Who Pays? (May 16, 2023), https://www.debt.org/family/people-are-dying-in-debt. ↩︎
7. Id. ↩︎
8. FederalStudentAid, https://studentaid.gov/manage-loans/forgiveness-cancellation/death. ↩︎