What Happens to Your Debt After Death?

Losing a loved one is never easy. In addition to grieving a loss, there are financial challenges that may arise, including debt repayment. The issue of debt can become even more complicated after death. Does debt transfer to a living spouse? When can debt be forgiven? Read on for a brief outline of what happens when a person passes away and has debt.

Who Is Responsible for Remaining Debt?

The obligation for debt repayment almost always falls on the estate of the deceased. The term “estate” refers to all assets belonging to the person who has died. This may include savings accounts, stock market investments, retirement accounts such as a 401(k) or IRA, real estate, a car, personal possessions and so on. If unpaid debts are left behind, creditors will expect to collect money from the estate of the deceased. Creditors have a certain amount of time to file a claim against the estate, which varies depending on state laws. In Massachusetts, creditors have twelve months from the date of death to make a claim.

Can Debt Transfer to a Spouse or Family Members?

In most cases, the answer is: No. Family members and spouses are not legally responsible for paying off the debt of someone who has died, and lenders will not expect to receive money from anywhere except the deceased’s estate. If the deceased person’s estate is not able to cover the debt, collectors may have to claim a loss. However, family of the deceased may be contacted if they were a joint account owner with the person who has passed away or if they jointly borrowed money as co-signer on a loan. In cases like these where the debt is shared, the surviving borrower would be responsible for all remaining debt.

What Happens to Outstanding Medical Bills?

When medical debt remains after death, it is usually covered by the estate of the deceased. If the estate is insolvent—meaning there’s not enough money to cover outstanding debt—survivors are typically not responsible for medical bills. Still, around half the states in the US, including Massachusetts, do have a filial law on the books, which technically says that adult children are financially responsible for their parents’ medical care. This means that a family member could be sued to cover outstanding medical bills. In practice however, it’s much more common for medical bills to be paid out by an estate, covered by Medicare, or deemed an unrecoverable loss by the medical institution. If you have any concerns in this area, speak with a lawyer.

Is It Legal for Debt Collectors to Contact Family?

Debt collectors are generally allowed to contact the spouse or other family of the deceased about recouping money owed, and you are allowed to ask questions and get more information about the debt in question. However, debt collectors cannot make untrue claims about debt responsibility, and family of the deceased have the right to tell debt collectors when and how they may be contacted. If you are receiving an excessive number of calls or communications from a debt collector, ask for details of the debt in writing and keep careful track of any communication between yourself and the debt collector. Be aware that scammers may try to capitalize on a death to commit fraud, so if you have any doubts about the legitimacy of the debt in question, contact a lawyer or get more information from the Federal Trade Commission.

Final Thoughts

Sorting out paperwork and debt after a death can be taxing—emotionally, mentally, and financially. Depending on your income, you may qualify for free legal aid or other Eldercare support services. Head online to find local services available in your area, or speak to friends and family who may have recently experienced a similar situation. Many employers also offer Employee Assistance Program (EAP) that can provide free resources to help families after the loss of a loved one.