Do You Still Owe Debts When You Die?

The death of a loved one is a tragic circumstance that creates a number of complications. One of the issues family members deal with is the debt of the deceased, including judgments, taxes, mortgages, liens, loans and credit cards. Since debts are agreements signed by the deceased, it is tempting to think that liability for a debt ends upon death, but this is not the case.

Estates and Probate

When a person dies, all of their financial liabilities and assets become an "estate." This estate is subject to a process called probate, during which a court examines the estate and distributes it. The court takes into account all of the property and assets and uses them to pay off all of the liabilities the estate owes, including debts. If there is any money left over, the court dispenses it to the beneficiaries, according to the stipulations spelled out in a will or state probate law.

Insufficient Assets

If the assets in an estate are not great enough to cover the liabilities, then any debt that remains after the court distributes the assets disappears, unless there is another party the creditors can look to for payment. The beneficiaries get nothing, but are not responsible for the remaining debt. This does not stop some creditors from attempting to get the money from family members, however.

Shared Liability

The elimination of debt because of insufficient estate assets only applies to debt that is solely in the name of the deceased. Debt that is held jointly with another holder who is not deceased is not settled during probate. For example, if a husband and wife sign for a credit card and the husband dies, the wife becomes personally responsible for the debt. This is also true for any loans that are co-signed.

Community Property

There are some exceptions to this. In states that have community property laws, such as California, all property and liabilities created during a marriage belong to the "community" of both spouses, whether both parties signed for them or not. This means that after the death of a spouse, the surviving spouse becomes the owner of all liabilities and a creditor could choose to pursue him for the debt.