What happens to debt after someone dies?

From mortgages and car loans, to credit cards and student loans, most Americans have some combination of debt—and the numbers may give you sticker shock…

The average American has about $38,000 in personal debt, excluding home mortgages.1

And with day-to-day costs continuing to soar, many American families are just scraping by, making it difficult to pay off debts. In fact, many Americans never get around to paying it all off, with nearly three-quarters of Americans leaving outstanding debt when they die.2

This lends the question: What happens to debt after someone dies?

To explain it simply, an individual’s debts are the responsibility of his/her estate after he/she dies. An estate is everything an individual owns at the time of death, regardless of value. During the probate process, the executor (the person who’s responsible for an individual’s will and estate) will use the estate to pay off debts. Depending on how much the individual owes, the executor will use bank accounts and may have to sell property to get the money. Any leftover assets are then distributed to the individual’s heirs.

But what happens if there isn’t enough money from the estate to cover an individual’s debts? The consequences depend on the circumstances and the type of debt.

Love and marriage…and debt

Are spouses responsible for debt? That depends. Spouses who co-sign for a loan, or are joint account holders, are generally responsible for paying these shared debts. Additionally, spouses in community property states are responsible for any debts incurred during the marriage, regardless if they are co-signed. Community property states include: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

Debts that may become someone else’s burden

Some types of debt may become someone else’s burden if an individual’s estate can’t cover the charges. Here’s what happens to a few specific types of debt after an individual dies:

Car loan: If a spouse has co-signed for the vehicle, or lives in a community property states, the spouse will be responsible for the car loan. If there’s no co-signer, the estate can’t pay off the car loan, and payments stop, then the lender can repossess the car. However, if someone inherits the car, he or she can take over the loan and continue making payments.

Credit cards: Unlike a car loan or a mortgage, credit card debt isn’t secured by assets. This means if an individual’s estate can’t pay off a credit card balance, the credit card company is out of luck. However, if there’s a joint account holder, this person would be responsible for the unpaid bills. Additionally, if there’s a widow/widower who lives in a community property state, he/she would be responsible for any credit card debt incurred during marriage, regardless if it’s a joint account or not.

Mortgage: If there’s a joint homeowner, that person would be responsible for the mortgage. If there’s no joint homeowner, then one of four things may happen:

  1. The estate pays off the mortgage.
  2. The house is sold to pay the mortgage.
  3. A family member inherits the house and takes over the mortgage.
  4. If the mortgage isn’t paid or taken over, the bank will foreclose on the property and sell it to recoup its money.

Student loans: Here are a few things to keep in mind when it comes to student loans:

  • If it’s a federal student loan: When the borrower of a federally backed education loan dies, the debt is discharged by the government.
  • If it’s a private student loan: Lenders of private student loans are not required to cancel the debt if the borrower dies, although some lenders do offer death discharges. If a lender does not offer death discharges, then the debt will be charged against the borrower’s estate. If there isn’t enough money in the estate, the cosigner would become responsible for paying the remaining debt. Or, if there’s a widow/widower who lives in a community property state, he/she could be responsible for repaying the student loans if the loans were taken out during the marriage. If you have private student loans, check with your lender to learn about their policies.

Help protect your loved ones with life insurance

Many people purchase life insurance to help protect their loved ones from their debt in the event that they unexpectedly die. Cash benefits from a life insurance policy can be used to pay off debts, fund final expenses and leave a legacy. Life insurance is the most simple, affordable way to protect your loved ones from the potential burden of your debts.

Are you ready to learn more about life insurance? Our agents are here to help! Give us a call at (800) 525-7662 to get paired with a local Washington National agent, who will help you find the best policy for your needs.

1CNBC, Here’s how much debt Americans have at every age,, August 2018.
2MSN, On average, Americans die with $61,000 in debt: Who pays?,, August 2018.

Insurers and their representatives are not permitted by law to offer tax or legal advice. The general and educational information here supports the sales, marketing and service of insurance policies. Based upon individuals’ particular circumstances and objectives, they should seek specific advice from their own qualified and duly-licensed independent tax or legal advisers.

Policies underwritten by Washington National Insurance Company, home office Carmel, IN.