Do you inherit debt? What happens to a deceased relative’s debts

The general rule: debts are paid from the estate

When someone dies, what they leave (money, accounts, home, car and other property) makes up their estate. According to the FTC, the executor or personal representative is responsible for paying the debts from the estate, following state law.

The CFPB explains that if the estate doesn’t have enough money and no one else shares responsibility, the debt generally goes unpaid. According to the FTC, family members usually don’t have to pay a deceased relative’s debts from their own money just because they are family.

When you might have to pay

According to the CFPB and the FTC, you may be responsible if:

• You co-signed a loan, such as a car loan, that still has a balance.
• You were a joint account holder on a credit card. Being only an “authorized user” is not the same.
• You are the spouse and your state’s law requires spouses to pay certain debts, such as some medical expenses.
• You are the spouse in a community property state that requires using shared property for the deceased spouse’s debts: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, and Alaska if a special agreement was signed.
• You were legally responsible for settling the estate and didn’t follow certain state probate laws, according to the FTC; or you are the executor or administrator and your state’s law requires paying from jointly owned property, according to the CFPB.

Rules vary by state. If you have questions about your case, talk to a probate, consumer law or debt collection defense attorney; the CFPB also mentions free legal aid if you qualify.

What debt collectors can and can’t do

The FTC explains that a collector can discuss the debt only with the spouse, the parents (if the deceased was a minor), the legal guardian, the attorney, the executor or personal representative of the estate, or a confirmed successor in interest. They can contact other relatives only to get that representative’s contact information, usually just once, and without discussing the debt.

• They can’t tell you or imply that you have to pay from your own money unless one of the exceptions applies. The CFPB says doing so is illegal.
• According to the CFPB, a collector can never harass you, even if you are responsible for the debt. The FTC explains that the Fair Debt Collection Practices Act (FDCPA) also protects family members from abusive, unfair or deceptive practices.
• You can ask them to stop contacting you. The FTC advises doing it in writing (a phone call isn’t enough) and keeping a copy. That doesn’t cancel the debt.
• They must give you a debt validation notice in the first contact or within the next 5 days. If you are the spouse or the estate’s representative and a collector refuses to give you information about the debt, the CFPB warns it might be a scam.

How life insurance protects your family from debt

A deceased person’s debts can leave the family without an inheritance, even if they don’t have to pay out of pocket: whatever goes to the bank no longer reaches the children. Life insurance with named beneficiaries changes that.

In Florida, the law (Statute 222.13) says that when a state resident dies, life insurance benefits only the person named in the policy and that this money is protected from the insured’s creditors, unless the policy or an assignment says otherwise. If the policy is instead payable to the estate, the money becomes part of probate and can be used to pay debts. Rules in other states may differ.

Also, according to the IRS, the death benefit is generally not taxable income for the person who receives it. Any interest received on that money must be reported.

Make sure your policies have named, up-to-date beneficiaries. If a beneficiary has died or your family situation has changed, update it.

What to do if a relative died with debt

Steps that help you get organized:

• Don’t pay any debt out of pocket without first confirming it is yours to pay.
• Find out who the executor or personal representative is and refer collectors to that person.
• Ask in writing for validation of each debt.
• Keep copies of the death certificate and every letter you receive.
• If a collector pressures or threatens you, you can file a complaint with the CFPB, the FTC or your state attorney general’s office.

Frequently asked questions