When You Die Is Your Debt Canceled?

With the exception of federal student loans, most debts aren't canceled at death, and creditors still have the right to attempt collection. However, collecting debts isn't always easy: Relatives and heirs generally aren't responsible for paying the deceased's debts, requiring creditors to file a claim against the deceased's estate in hopes of compensation.

Debts of the Deceased

When someone dies, her debts will be paid from her estate, if she left one. Her relatives and heirs are not responsible for paying her debt, even if her estate is not large enough to pay her creditors back. Creditors may be informed of the deceased's death by family members, by the estate executor, or through a notice printed in a newspaper. According to the article "8 Ways to Avoid Probate" at Nolo.com, the creditors have a limited amount of time, which varies by state, to present their claim to the executor. If they prove their claim, the executor will compensate them if there are funds available.

One exception to the principle that relatives do not inherit debt is in cases of joint debt. If a relative or friend took out a joint credit card or co-signed for a loan, that co-debtor is still legally obligated to pay back that debt.

Executor's Duties

An estate executor or administrator oversees the deceased's financial affairs. The executor is responsible for gathering information about the deceased's debts and assets. Once his assets are collected and, if necessary, liquidated, the executor can pay the deceased's creditors. After the executor satisfies the creditors, he can pay the remainder of the estate to its heirs.

Student Loan Debt

Federal student loans are canceled when a student dies. This is true of both student-borrowed loans, such as Stafford and Perkins loans, as well as PLUS loans that a parent takes out to pay for her child's education. In the later case, the loan is canceled if the student dies. If both a student's parents took out the PLUS loan, the loan is likewise canceled, though if only one parent who signed for the loan dies, the loan's status does not change.

Debt Collection

Relatives of recently the recently deceased may receive calls from creditors and bill collectors. In some cases, these callers simply want to get information about how to contact the estate executor, while others may try to persuade the relative to pay a debt. Since debt is not inherited, relatives are not under any obligation to pay these debts, and should refer the caller to the estate's executor for the purpose of filing a claim.