Most debts will be paid by your estate, out of your assets, before the remainder is distributed to your heirs. If the estate’s assets do not cover all the debt, much of it will be forgiven. Some types won’t, however, and rules differ from state to state.
The death of a loved one is always difficult. In the midst of grieving, you may need to handle the person’s financial affairs, including any outstanding debts like loans You may wonder – do loans get passed on after death?
The short answer is that it depends on the type of loan and how close you were to the person who died. It’s important to know what happens to different types of loans when someone dies.
How Loans Are Treated After Death
When someone with outstanding debts dies, their loans don’t automatically disappear. Here are some key things to know:
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The deceased person’s estate is responsible for repaying their debts. This includes assets like cash real estate, vehicles investments, etc.
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Creditors may not get paid in full or in part if there isn’t enough money in the estate to pay off all debts.
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Certain survivors may be personally responsible for some debts, like if they were a co-signer on a loan.
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Federal student loans are discharged upon death, but private student loans are not.
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Most mortgages and auto loans can be transferred to heirs if payments continue.
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Credit card debt is typically voided after death, unless you were a joint account holder.
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Debt collectors can contact surviving spouses to discuss repayment options, but can’t suggest using personal assets.
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Community property states require debts to be paid from jointly owned assets.
So, loans that are still due are often still paid for by the estate or survivors. But there are some exceptions, like federal student loans.
Specific Types of Loans
Now let’s look at some common loan types and what happens when the borrower passes away:
Mortgage Loans
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Mortgages typically have due-on-sale clauses requiring full repayment before transferring ownership. This doesn’t apply to transfers to heirs.
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If they keep making payments, inheritors who aren’t co-signers can take over the mortgage. Lenders must allow this per federal law.
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If multiple people inherit the home, it gets more complicated – consult an attorney.
Auto Loans
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Auto loans should be paid by the estate if possible. If not, the vehicle may be repossessed and sold to repay the loan.
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Inheritors of the vehicle can take over payments if they aren’t co-signers.
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Cosigners and joint owners remain responsible for the debt.
Credit Cards
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Authorized users are not responsible for the deceased user’s credit card balance.
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Joint account holders are still responsible for repayment.
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In community property states, balances are considered jointly owned and must be repaid.
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Otherwise, credit card debt is typically voided after death.
Medical Debt
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Medical debt is generally paid by the estate.
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A handful of states have filial responsibility laws making children financially responsible for parents, but these are rarely enforced.
Federal Student Loans
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Federal student loans are discharged upon the borrower’s death. This includes Parent PLUS loans.
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However, private student loans are not discharged. Check the loan terms.
Personal Loans
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For both secured and unsecured personal loans, the estate typically pays the balance.
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Cosigners, joint owners, and spouses in community property states remain responsible.
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If it’s a secured loan, the lender may seize collateral like a car if payments stop.
Payday Loans
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Payday loans are unsecured, so they are handled like other personal loans. The estate pays if possible.
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If two people took out a joint payday loan, the surviving borrower is still responsible.
Business Loans
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With a business loan, the company is the borrower – not individuals. The business (including any successors or partners) remains responsible for repayment.
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However, personal guarantees on business loans do pass to the guarantor’s estate. Cosigners and spouses in community property states are also responsible.
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SBA loans are discharged if the borrowing business closes after the owner’s death.
Home Equity Loans
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Home equity loan balances are typically transferred to whoever inherits the home.
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If multiple people inherit the home, consult an attorney to understand each person’s rights and responsibilities.
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The inheritor(s) can continue making payments to retain ownership. Otherwise, the lender can foreclose.
How to Check If You’re Responsible
If a lender contacts you about a deceased person’s loan, here are some things you can do:
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Review loan documents – Check for cosigners, account holders, etc. Debt collectors must provide this if you request it.
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Consult an attorney – They can advise if you’re personally liable according to state laws on estates and debts.
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Understand property laws – Community property states require spouses to pay debts from jointly owned assets.
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Talk to the lender – Discuss whether payments can come from the estate or work out alternative repayment plans.
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Pay from the estate – If you’re the executor, you can make payments directly from estate assets.
While the loss of a loved one is difficult, understanding loan obligations can help you properly handle their finances. With the right information and professional help, you can resolve outstanding debts in the most efficient way.
Medical bills after death
Medical debt and hospital bills don’t simply go away after death. In most states, they take priority in the probate process, meaning they usually are paid first, by selling off assets if need be. In some states, a spouse may be responsible for some of these bills, but otherwise they tend to go away if they can’t be paid by the estate.
What debts are or aren’t forgiven at death?
The short answer is that it depends. Each type of debt has different rules, and there’s a certain order in which debts of different types are repaid. This process, unfortunately, is different for each state. Confused? Don’t worry. We can cover some of the basics here.
WHO IS RESPONSIBLE FOR A DECEASED PERSON’S DEBT?
FAQ
Do you get your dad’s debt when he dies?
Generally, no, you won’t automatically inherit your father’s debt. In most cases, debts are paid from the deceased person’s estate before any assets are distributed to heirs.
Do loans carry over after death?
Loans of any kind do not transfer to your heirs after your death. Your estate still owes your debts but not your surviving family.
What debt do you inherit from your parents?
If you inherit a parent’s property, you inherit any debts associated with that property. You also inherit any debts for which you are a co-signer. May 14, 2025.
Do children inherit their parents’ medical debt?
Generally, heirs do not inherit medical debt. However, responsibility depends on state laws and legal agreements made before the person passed away. Feb 1, 2025.