Debt After Death: What Happens to Debt When Someone Dies?

Posted on April 8, 2025 by VP of Marketing and Business Development Jessica

Losing a loved one is never easy. In addition to the emotional challenges you may face, you might also be worried about what will happen to their debt once they are gone. Generally, with limited exceptions, when a loved one dies you will not be liable for their unpaid debt. Instead, their debt is typically addressed through the settling of their estate.

How are debts settled when someone dies?

The process of settling a deceased person’s estate is called probate. During the probate process, a personal representative (known as an executor in some states) or administrator if there is no will, is appointed to manage the estate and is responsible for paying off the decedent’s debt before any remaining estate assets can be distributed to beneficiaries or heirs. Paying off a deceased individual’s debt can significantly lower the value of an estate and may even involve the selling of estate assets, such as real estate or personal property.

Debts are usually paid in a specific order, with secured debt (such as a mortgage or car loan), funeral expenses, taxes, and medical bills generally having priority over unsecured debt, such as credit cards or personal loans. If the estate cannot pay the debt and no other individual shares legal responsibility for the debt (e.g., there is no cosigner or joint account holder), then the estate will be deemed insolvent and the debt will most likely go unpaid.

Estate and probate laws vary, depending on the state, so it’s important to discuss your specific situation with an attorney who specializes in estate planning and probate.

What about cosigned loans and jointly held accounts?

A cosigned loan is a type of loan where the cosigner agrees to be legally responsible for the loan payments if the primary borrower fails to make them. If a decedent has an outstanding loan that was cosigned, such as a mortgage or auto loan, the surviving cosigner will be responsible for the remaining debt.

For cosigned private student loans, the surviving cosigner is usually responsible for the remaining loan balance, but this can vary depending on the lender and terms of the loan agreement.

If a decedent had credit cards or other accounts that were jointly held with another individual, the surviving account holder will be responsible for the remaining debt. Authorized users on credit card accounts will not be liable for any unpaid debt.

Are there special rules for community property states?

If the decedent was married and lived in a community property state, the surviving spouse is responsible for their spouse’s debt as long as the debt was incurred during the marriage. The surviving spouse is responsible even if he or she was unaware that the deceased spouse incurred the debt.

How much debt Americans expect to leave behind when they die:

Source: Debt.com Death and Debt Survey, 2024

What if you inherit a home with a mortgage?

Generally, when you inherit a home with a mortgage, you will become responsible for the mortgage payments. However, the specific rules will vary depending on your state’s probate laws, the type of mortgage, and the terms set by the lender.

Can you be contacted by debt collectors?

If you are appointed the personal representative or administrator of your loved one’s estate, a debt collector is allowed to contact you regarding outstanding debt. However, if you are not legally responsible for a debt, it is illegal for a debt collector to use deceptive practices to suggest or imply that you are. Even if you are legally responsible for a debt, under the Fair Debt Collection Practices Act (FDCPA), debt collectors are not allowed to unduly harass you.

Finally, beware of scam artists who may pose as debt collectors and try to coerce or pressure you for payment of your loved one’s unpaid bills.

Questions about this topic or looking to get started with estate planning? Contact First Financial’s Investment & Retirement Center by calling 732.312.1534. You can also email mary.laferriere@lpl.com or maureen.mcgreevy@lpl.com

Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker/dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. First Financial Federal Credit Union (FFFCU) and First Financial Investment & Retirement Center are not registered as a broker/dealer or investment advisor. Registered representatives of LPL offer products and services using First Financial Investment & Retirement Center, and may also be employees of FFFCU. These products and services are being offered through LPL or its affiliates, which are separate entities from and not affiliates of FFFCU or First Financial Investment & Retirement Center.

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The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. CRPC conferred by College for Financial Planning. This communication is strictly intended for individuals residing in the state(s) of CT, DE, FL, GA, MA, NJ, NY, NC, OR, PA, SC, TN and VA. No offers may be made or accepted from any resident outside the specific states referenced.

Protecting the Financial Future of Your Family with a Will

Posted on August 9, 2024 by VP of Marketing and Business Development Jessica

Parents may not like to dwell upon their untimely deaths, but creating a will now will help ensure your family’s finances in the future.

A will is a legal document that specifies how to distribute your assets and investment accounts to your family and others should you unexpectedly die. Check out our short video, When do you need a will? If you have any questions after watching the video, complete the online form and our Financial Advisor will reach out to you. It’s important to understand what a will can do as you plan for your family’s future.

You need a will to work your will. Dying intestate (without a will) turns important decisions over to a state probate court judge who will follow standard procedures to distribute your wealth. A will allows you to name your beneficiaries and the amount they inherit, which might be very different from what the state considers to be standard.

Your will can specify a guardian for your children. In today’s society, many parents are single with no obvious candidate to assume guardianship of your children should you suddenly die. You can designate a guardian in your will rather than leaving the decision to the state. Naming a guardian protects your children from state custody and ensures a trusted person looks after your children’s future.

Use your will to establish trusts when you die. Your will can be used to create trusts that start upon your death. Using trusts, you can address specific concerns – such as caring for a special needs child, managing your investment portfolio, or preventing a child from misusing a bequest setup for college expenses. You can fund your trusts from various sources – such as life insurance policies, and set the conditions for distributing the money.

Plan payments for debt and taxes. Your will can lay out how to repay any remaining debt and taxes. You also can use your will to make charitable gifts and thereby reduce the size of your estate. In some cases, this will lower or eliminate the burden of estate and/or inheritance taxes upon your family.

Setting up a will is worth your time. When you consider the advantages provided by a will, the effort going into creating one is a small price to pay. Contact the First Financial Investment & Retirement Center by calling 732.312.1534 and together we can review your financial portfolio. We can answer any questions you may have about your finances before you meet with a qualified attorney to create your will.

You can also email the financial professionals in the Investment & Retirement Center at mary.laferriere@lpl.com or maureen.mcgreevy@lpl.com

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This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal.

This material was prepared by LPL Financial, LLC

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Financial Steps to Take After Losing a Spouse

Posted on September 22, 2023 by VP of Marketing and Business Development Jessica

The passing of a spouse is undoubtedly one of the most heart-wrenching events one can experience. Alongside the emotional distress, there’s also an intricate web of financial obligations and decisions that emerge. With emotions running high, making sense of these responsibilities can feel daunting. Here’s some guidance to provide some clarity and find your financial footing during a challenging time.

Take Time to Mourn

Before diving into any immediate financial matters, it’s essential to take some time for yourself. Grief is not a linear process, and it’s okay to pause. While some financial tasks may need prompt attention – remember that it’s okay to seek help and delegate when necessary.

Assemble Important Documents

Collate all essential paperwork, such as:

Death certificate (obtain multiple copies, as various institutions may require them)
Last will and testament
Insurance policies
Bank account details
Mortgage or loan papers
Tax documents

Seek Legal Counsel

Engaging with an attorney can help you decipher the legalities surrounding your spouse’s estate, especially if there is no will. They can guide you through the probate process and advise on any outstanding debts or assets.

Assess Immediate Financial Needs

It might be a few weeks or even months before insurance payouts or other funds become available. Ensure that you have access to sufficient resources to cover short-term expenses, such as funeral costs, household bills, or immediate medical expenses.

Notify Relevant Parties

Reach out to various institutions to inform them of your spouse’s passing. These include:

Banks and financial institutions
Credit card companies
Insurance providers
Social Security Administration
Employer and pension funds

Address Joint Accounts and Liabilities

If you had joint bank accounts or credit cards, get in touch with the financial institution to understand the procedures for transferring or closing them. Also understand any joint liabilities, such as mortgages or loans, and discuss your options.

Review Insurance Payouts

File for life insurance claims if your spouse had a policy. The funds can be invaluable in covering immediate costs and planning your financial future. Also, review your insurance needs, as they might change with your spouse’s passing.

Update Your Estate Plan

Reevaluate your own will, beneficiaries, and estate plan. If you don’t have a will, now is a crucial time to consider drafting one.

Reassess Your Budget

Your financial situation may have changed significantly. Analyze your new monthly income and expenses, and adjust your budget accordingly. This will also be a time to rethink long-term financial goals.

Protect Against Identity Theft

Unfortunately, deceased individuals can be targets for identity theft. Report your spouse’s passing to the credit reporting agencies and monitor their credit report for any unusual activity.

The loss of a partner is an unimaginable pain. While finances might seem like a trivial concern amidst the grief, ensuring stability can offer some solace without the additional weight of financial stress. The team at First Financial is here for you when you’re dealing with difficult losses, and is ready to help you navigate your finances with care and sensitivity. Contact us when you need us, or stop by your local branch.