What happens to your debt when you are no longer around to bare the burden? Is your debt forgiven or does the responsibility of repaying your debt fall on your loved ones left behind? Unfortunately the answer is no cut and dried in regards to how your debt is handled after your death. There are several factors including the state in which you live that will determine who (if anyone) is responsible for you debt.

Does your family inherit your debt?

Generally when you pass away your estate is responsible for paying off your debt. In most cases the executor will look at both your assets and debts, determine how the bills should be paid with any remaining assets distributed according to your final wishes or state law (if there is no will). Any debt that you have in your name only will be included in this process, however if your spouse or another individual is a guarantor or joint account holder they, not your estate, willd still be responsible for repaying the debt. You should always keep the beneficiary of insurance policies, IRA’s, brokerage accounts and 401(k)s up to date as these assets may not be considered part of your estate and can’t be used to pay debt.

More debt than assets?

In some cases the deceased person may not have sufficient assets to cover their debt. When this happens unless there is someone else legally responsible for the debt (joint account holder) the creditors should be notified that the estate is insolvent. Credit card companies should then write off the debt since they can not legally force the family to pay.

Community property states.

Debt may be handled differently if you live in a state that employs the community property law. In most cases assets accumulated in marriage are considered joint property and in some cases so are debts. This could mean that your spouse is responsible for your debt even if he/she was not an account holder.

Handling accounts after death.

Any accounts held by the deceased person will have to be notified that the account holder is deceased. This responsibility can fall either to the executor or a family member. It is important to document any conversations or other correspondence you have with creditors and other accounts for future reference. Unfortunately it is not uncommon for family members to find themselves dealing with collection calls or other efforts to obtain payment even if they are not legally responsible for the debt.