Who Does the Debt Get Passed on to After Death?

Children and other relatives may worry they will be held responsible for the debt of loved one after she dies. However, debt cannot be inherited or transferred to someone else after the borrower dies. This means you do not need to worry about paying off debt you did not personally borrow or sign for.

Dealing with Creditors After Death

The executor of the estate will be responsible for settling the person's debt after she dies. The executor will use the assets of the estate to pay for the debts. The executor will need to contact the creditors immediately to inform them of the death. Creditors will want a copy of the death certificate mailed to them as soon as it is available. This should stop all phone calls while the estate is settled.

Estate Stands for Debt

Any assets the person owns must stand good for the debts left by a person. If the person owned a house with someone, then the house must be sold and half of the money be used to pay for the debts. Any assets will need to be applied to the remaining debt the person owes. If there is not enough money to cover all of the debts, than the executor will need to send a letter stating that the estate does not have enough money left cover any outstanding debt.

Life Insurance Money Exempt

Life insurance money will go to the beneficiary named on the policy and does not need to stand for any of the debts. This money can be used to pay for college for the deceased children or for any other reason. If the house or any other assets are co-owned, the beneficiary may choose to pay off the debts in order to keep the home or other assets. However this is not required, and should only be done if you can afford to keep the home once the debts are paid off.

Co-signers on Loans

Any co-signers for the deceased will assume responsibility for the debts they co-signed on. This means if you co-signed to help the ceased to qualify for a car loan or a mortgage you are responsible for paying off the loan in full. If you turn the car in instead of paying off the loan a voluntary repossession will show up on your credit report and you will be responsible for any loan amount. Selling the car, and then coming up with the difference will protect your credit more effectively.