Debt at Death
It’s very common for someone to die with unpaid bills and debts. These can be from medical care involved in a person’s final illness, costs of their “final disposition” (funeral, celebration of life, burial, cremation, etc.), home mortgages and vehicle loans (secured debts), regular living expenses (like unpaid utilities, insurance, etc.), and all other kinds of debt (credit card bills, student loans, personal loans, money judgements, unpaid taxes, and more). Unfortunately, dying doesn’t make these automatically go away. Here are a few essential things to know about debt after death:
Contrary to common belief, other people will not inherit your debt unless it is a joint debt (both of your names are on the debt paperwork) or they co-signed or otherwise guaranteed the debt for you (typical in leases, student loans, and sometimes in medical care). The only exception is for real property: if a mortgage is attached, it will become the responsibility of the person (or persons) who inherit the property.
Despite not “inheriting” your debt, your loved ones may get less (or nothing) from your estate or trust due to debt payments. It’s not true (in most situations) for people who are beneficiaries of retirement accounts or life insurance.
Creditors have a statutory right to repayment if funds are available and can even force an estate to open (for up to 2 years after the debtor’s death) to get paid. Local, state, and federal governments (primarily for unpaid taxes) have no deadline for seeking repayment.
Dealing with debts is an integral part of the “full administration” process for estates.