Does debt die with the debtor?

Whether debt dies with the debtor depends on circumstances. Credit card debt often dies with the debtor, but not always. In general, all debts in an estate must be paid before the heirs can be paid, including credit card debt. However, many people legally receive a decedent’s money outside of an estate, and many credit card debts are never paid.

Credit card companies naturally try to collect money that is owed them. Whether they succeed depends on several factors. A survivor is probably responsible for the debt on a jointly held card. A credit card is jointly held if two or more people applied for and received it. However, if only one person applied for the card, and the survivor was only authorized to use it, then that person is probably not responsible for the debt, at least in California.

If there is an estate though, it is usually responsible for the debt. During probate the executor pays off all debts, including credit cards.  He or she generally begins by sending the credit card company a copy of the death certificate. Thereafter, the estate will not owe additional penalties or fees, but will owe the original debt.

Many times however, there is no estate and no probate. In this case, the credit card company loses. Children, friends, or life partners are not responsible for the debt of someone who left no assets. In the case of someone who left no will but did have assets, the state will decide who gets what, and this may or may not include the credit card companies.

In community property states, the situation may be more complex. These states include California, Texas, Arizona, Alaska, Nevada, New Mexico, Washington, and Wisconsin. In general, a marriage partner who inherits assets also inherits debt. Not always, though. If a partner had a completely separate account, it is possible, that the survivor does not inherit it

Some assets come to survivors directly, without passing through probate. These can include life insurance, IRAs, brokerage accounts, and 401k accounts. Often, money from such accounts goes directly to the stated beneficiary, without probate and without debt. However, this is not a hard and fast rule. Laws vary widely, state by state.

Homes are generally safe from debt collectors. They pass to heirs slowly, but usually without problems. However, if the house is sold and the proceeds added to the estate, then the executor may pay off debts with part of the money.

To sum up, heirs usually do not inherit debt. However, anyone who co-signed on a debt made himself responsible for paying it. Someone with a joint credit card account may well find he or she is now responsible for the whole balance. A loan co-signer may well be legally responsible for the entire remaining debt, as well.

Most credit card debt dies with the person who owed it, especially if the debtor leaves no assets. Homes pass to survivors, with their mortgages, as a rule. Annuities, IRAs and other retirement plans pass unencumbered to a named beneficiary. However, debts that were jointly held probably do have to be paid.

Certain assets can come to survivors directly however. Generally, people who inherit directly, such as through life insurance, are not responsible for the debt of the estate. Many planners will suggest that people with substantial assets buy life insurance, because an insurance payment comes to a beneficiary directly and relatively quickly. It is not affected, as a rule, by the settlement of the estate, so the payment can be used for continuing expenses, such as taxes.