Do Debts Die With the Debtor?

Unpaid debts may follow you to your grave and then the question arises of whether they will live on without you. Most debts will indeed die with the debtor, or at least once the debtor's estate has been settled. Some debt may even be forgiven if you pass on. In a few special cases though, a debt may persist beyond your death.

Student Loans

Should you die, the federal government will forgive any outstanding student loans. This includes both subsidized or unsubsidized Stafford loans and any Plus loans your parent's may have taken out on your behalf. Some private student loans may also be forgiven upon your death, but this is not guaranteed. You should check the terms of your private loans to determine if they are discharged if you die. Having the loans forgiven means that money from your estate will not be used to pay them. This means more money is available to cover your other debts, funeral expenses and for your heirs to inherit.

Shared Debt

Some debt may continue beyond your death because another person shares responsibility for it. In some states, your spouse may inherit full responsibility for your debts if you held all property and bank accounts in common. Additionally, if another person cosigned or guaranteed any of your debt, they will assume responsibility for it upon your death.

Your Estate

Upon your death, the executor of your estate is responsible for taking an inventory of all your assets and outstanding debts. The executor must then use your assets to pay these debts in a priority order set by the state. The process of determining which debts are paid, and how remaining assets are distributed, is known as probate. Your debts remain alive until probate is over, which takes around a year. Note, that your creditors are not allowed to contact anyone about your debts unless they are authorized to make payments against your estate. Additionally, your relatives are not responsible for your debt and your creditors cannot attempt to collect from them.

Insolvent Estate

An estate is considered insolvent if it has more debt than assets. In the case of an insolvent estate, some of your debts will not be paid in full, or at all. After hanging on through the probate process, those debts will then be dismissed. At that point, the creditor has no recourse and the debts will be "charged off," meaning the creditor will record them as a loss.