What Happens to a Person’s Debt When They Die?
Written by Law on Call Staff |Reviewed by Nathan Askins |Last Updated February 12, 2026
When a person dies, their assets generally pass on to family members. But what happens to a person’s debt?
We’ll take a look at what happens to debt when someone dies, who pays the debt, and how to make the transition easier, including what steps families can take to avoid unnecessary financial stress during an already difficult time.
Main Takeaways
- Assets from a person’s estate, like savings or property, are used to pay any leftover debt.
- Joint loans or cosigned debts can become someone else’s responsibility, and spouses in some states may be liable.
- It is important to take steps to ensure surviving family members are protected in the event of your death.
What Is the Role of the Estate in Paying Debts?
A person’s estate is the sum total of all the assets they own. A home, car, investments, even a baseball card collection are part of an estate. When a person dies, their assets are distributed to their beneficiaries. The process of settling an estate is called probate, the court-led process through which the estate is assessed and assets are distributed.
In general, when a person dies, all outstanding debts (including medical debt) must be paid before the surviving family members receive any money.
How does probate work?
Probate can be complicated, and hold the process of debt payment up. Here’s how it generally works:
- If there is a will
The executor named in the will uses money from the estate to pay any outstanding debts. - If there is no will
A probate judge chooses an administrator to make decisions on how to distribute the assets. If there is money left after paying debts, the remaining assets will be distributed according to state law. - If the assets are greater than the debt
The estate is deemed solvent, and the debt will be paid. Whatever is left over will be distributed according to the will/state law. - If the debt is greater than the assets
The estate is insolvent. The court decides which creditors get paid. Some creditors may get only partial payments or nothing at all.
Do all assets go through probate?
Not all assets are subject to probate, which means that these assets can’t typically be used to satisfy debts. Knowing the difference is important for estate administrators. Here are the main asset categories:
- Assets with named beneficiaries
Most investment and financial accounts let you name a beneficiary. This includes 401(k)s, IRAs, life insurance policies, HSAs, and mutual fund or investment accounts, as well as checking and savings accounts. When the account owner dies, these assets go directly to the named people or entities and do not go through probate. - Jointly held assets
A common example of this is real estate. If you and your partner own a home as Joint Tenants with Rights of Survivorship, the surviving owner automatically becomes the sole owner when the other dies, and the property usually does not go through probate. However, this only applies if the property is titled that way. If the home is owned as Tenants in Common, each owner’s share does not automatically transfer at death and instead becomes part of that person’s estate. - Assets titled as payable on death
Some financial assets like bank and investment accounts allow for beneficiary designations, while others use Transfer on Death (TOD) or Pay on Death (POD) instructions. Listing beneficiaries on these accounts helps to avoid probate. - A trust
Often called a living trust, revocable trusts and irrevocable trusts can avoid probate because assets placed in it are legally owned by the trust, not the individual. The administrator of the trust, or successor trustee, can transfer or manage those assets without court involvement.
In What Order Are Debts Paid Following Death?
Estate and probate laws vary by state. For example, Arizona state law dictates that federal taxes take priority over state taxes. But in general, most debts are paid in the following manner:
1. Estate Administration
This includes fees required to settle the estate, such as payments to the executor, attorney fees, court filing costs, and expenses related to managing or appraising assets.
Often called a one-way NDA, it’s most commonly used when a business is pitching an idea to an investor. It’s also used to ensure employees don’t disclose proprietary company information to an outside party.
2. Funeral Costs and Burial Expenses
Funerals are not cheap, so the executor will need to budget (if there is no insurance plan in place) for final end of life costs.
3. Federal and State Taxes
The deceased may owe income and other taxes to both the IRS and state tax bureau.
4. Secured Debt
A home mortgage, line of credit, or car loan usually qualifies as secured debt (debts backed by assets).
5. Medical Debt
When someone dies, any unpaid medical bills generally become part of their estate and are paid out of their assets. If the estate doesn’t have enough money to cover the debts, the remaining medical debt is often forgiven.
6. Unsecured Debt
If there are any remaining assets, credit card debt, certain loans, and utilities will need to be paid.
Don’t leave anything to chance.
Can Debt Transfer to a Spouse or Family Members?
Generally, the answer is no. A person’s debt does not automatically transfer to their spouse or family members at death. In most situations, only the estate of the person who has passed away is responsible for settling outstanding balances. If the estate doesn’t have enough assets to cover the debt, the lender typically must absorb the loss.
There are, however, a few important exceptions. Let’s take a look.
When Debts Can Transfer
- Joint Accounts
If a family member was a joint account holder or co-signer on a loan or line of credit, they share responsibility for that debt. In those cases, the surviving borrower becomes fully responsible for the remaining balance after the other person dies. Outside of these shared agreements, relatives are not obligated to pay what the deceased owed. - Community-Property States
In community-property states, marriage creates a shared financial responsibility, so when one spouse passes away, the surviving spouse may still be responsible for certain debts created during the marriage. For example, California Family Code § 760 states that all property and debts acquired during the marriage are considered community property.
For example, if one spouse dies, debts they accumulated during the marriage can legally be treated as shared assets. However, debts from before the marriage or those clearly labeled as separate usually stay with the person who incurred them.
Six Ways to Protect Your Family from Your Debt
Whether death comes unexpectedly or after a long illness, taking a few practical steps now ensures your loved ones are cared for and your wishes are honored.
1. Write or Update Your Will
A will is the cornerstone of your estate plan. It specifies how your assets will be distributed, who will serve as your executor, and (if applicable) who will care for minor children or dependents. Without a will, state laws determine what happens to your estate, which may not reflect your desires.
2. Consider a Revocable Trust
While a will is a legal document that coordinates the distribution of your assets after death, a revocable trust is a legal entity that you can put your assets in. Things like stocks, bonds, cash, and real estate can all go into a trust. If you only have a will, your estate will likely have to undergo probate, which can slow the distribution of assets and be expensive A trust, by contrast, can dictate the transfer of assets to your beneficiaries upon your death.
With a revocable trust, if you become incapacitated due to a medical event, the trustee (the manager of the trust) can step in to handle your assets for your benefit, and after your death, for your beneficiaries.
3. Organize Your Documents and Digital Accounts
Beyond writing a will, compiling all essential documents in one accessible place can make end of life plans easier to follow. Include items like your birth certificate, Social Security card, property deeds, insurance policies, and financial records, along with a list of your online accounts and their usernames and passwords. Note: Make sure your trusted loved ones know where all these documents are. Even the best planning doesn’t mean much if no one can find any documentation about it.
4. Establish a Business Succession Plan
Having a business succession plan in place helps to ensure the company keeps running smoothly and ownership transfers as you wish upon death. Without a plan, the business can face confusion, legal complications, and delays in leadership, especially during probate. Clear procedures about what to do with your business when you die reduce disruption, protect employees and partners, and make transitions easier for everyone.
5. Designate Power of Attorney
A Durable or Financial Power of Attorney gives a trusted individual the legal authority to act on your behalf if you become incapacitated. Assigning financial power of attorney (POA) to someone you trust makes organizing finances at the end of life more streamlined and less stressful.
6. Buy or Update Your Life Insurance Policy
If you have loved ones who depend on you for support, you should get a robust life insurance policy. If you already have life insurance, you may need to adjust your policy to reflect changes in your life, like marriages, divorce, or other major events. It’s a good idea to talk to an insurance professional before you decide on a the type of policy you’ll need.
Frequently Asked Questions
Laws vary by state. For example, Washington law allows creditors to go after debt for up to 2 years depending on the type of debt. But in general, creditors typically have 3 to 6 months after notice of death is given.
Debt collectors may discuss the deceased’s debts only with the spouse, parent (if a minor), guardian, executor, administrator, or other authorized person. They may contact other relatives once to get correct contact information, but cannot discuss debt details or request payment during these calls. Note: Do not sign anything from a debt collector for a deceased family member unless you are legally responsible or officially handling the estate, since signing some documents could transfer personal liability to you.
You can update or revoke your will at any time before your death as long as you’re mentally and physically capable. However, you can’t just cross out sections or write in new ones. Changes must be made through a formal amendment that follows the same legal steps as the original will, typically with help from an estate planning attorney.
No matter the size of your estate, having a plan in place is a smart decision. It helps your loved ones understand your wishes and ensures those wishes are protected and legally enforceable.
Generally, when you inherit a home with a mortgage, you will become responsible for the mortgage payments. However, the specific rules will vary depending on your state’s probate laws, the type of mortgage, and the terms set by the lender.