Are you responsible for someone else’s financial obligations once they pass away? What happens to debt after death? Does it disappear or can creditors come after the family?
Like most questions financial, the answer is “it depends”.
The first issue to consider is if you are a co-owner or co-signer on the account. If you are either, you are out of luck because the debt is yours. That means creditors can and will come after you. Even if you simply co-signed the credit application or loan to do someone else a favor, you are responsible for the debt. Bad tone. This is one reason I strongly recommend that you avoid co-signing a loan if you can help it.
Note: If you are in the difficult situation of dealing with a loved one who may pass away, make sure you take steps now to make the financial process as easy as possible.
Now, if you are simply an authorized user on the account you have nothing to worry about. Nobody can force you to pay off any of this financial obligation. The only way authorized users find themselves on the hook is if they run up credit card bills after the main account holder passes away. If you do that, the creditors have a claim against you so don’t try this stunt. Also, keep in mind that creditors might try to dirty up your credit report by reporting a problem on an account that you are simply an authorized user on. This is bogus and a rotten tactic. Follow the steps outlined on this post to clean up incorrect credit history.
If you are the executor of the estate or trustee of the trust, you have some obligations for a deceased person’s debts but usually those obligations aren’t personal. Let me explain.
Let’s say you are the executor of your dear Aunt Bea’s estate who passed away 2 months ago. Bea was a sweet lady who wouldn’t hurt a fly but she was terrible with her finances. When she passed away she had $200 in her checking account and $13,000 in credit card debt.
The credit card companies are creditors so they have to file a claim against the estate in a timely manner if they want to get their $13,000 back. Then they must pursue a remedy through the court. They probably won’t get anything because there are no assets and fortunately they can’t come after you personally. Now let’s change the situation.
Let’s say Bea has a $13,000 investment account in addition to her $200 in the checking account. And lets say that you, as executor, decide to distribute that money to Bea’s nieces and nephews rather than pay off the creditors. In that case, you might very well be personally on the hook for that debt. Your only way out is for you to get those family members to return that loot. If not, your going to have to write a check for $13,000. That’s one reason why you should always consult an attorney before distributing a penny if you are the executor of an estate or trustee of a trust.
There is one other exception and it isn’t good. If you happen to live in a community property state (Alaska, Arizona,California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Alaska) you might be responsible for your deceased spouse’s debt even if your name isn’t on the account. That sucks. And if you live in a community property state, it’s another good reason to talk to a lawyer if your spouse is racking up debt.
In most cases, you aren’t responsible for other people’s debt once they die. If some creepy creditor tries to put the screws to you in an unreasonable way, tell them to back off or report them to the FTC and state attorney general’s office.
Have you ever been in the position of creditors coming after you for a deceased family member’s debt? How did it turn out?
Joyce Wolfe says
So are you saying the home loan that is only in my husband’s name , I will not have to sell the house to pay it off?
Neal Frankle, CFP ® says
It depends on your situation. I’d have to know more.
Chenell Tull says
Ahh, good to know about distributing money before a creditor gets paid. It seems logical, but maybe you weren’t aware of the deceased’s debt. Always good to know everything before distributing any money. Thanks for posting this!
Neal Frankle, CFP ® says
My pleasure. Glad it was helpful!