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Money and Debt

Responsibility for Paying Debts After Death

When a family member dies, what happens to the debts?

Generally, the debt ends with the person who passed away, but this is not always the case. The following are taken into consideration before a debt is settled: 
  • Was the deceased married?
  • Did others co-sign on loans or was there more than one person on a listed on the debt?
  • Are there any properties or assets that were left behind?

What happens to secured debts?

Secured debts are purchases made with a loan for items like a car or a house. These debts do not disappear after someone passes away, one of the following may occur:
  • The loan signed over to another person and they continue to make the payments
  • The item is sold, and the loan is paid off in full
  • The loan goes into default and the item is repossessed by the loan company

What happens to credit card, car loan, and mortgage payments if the person was married?

In most cases, these debts still must be paid by the surviving spouse. Arizona is both a community property and a community debt state. When a married couple incurs debt, both spouses are considered responsible for the debt. It does not matter whether both names are on the account. Examples of things the surviving spouse would be responsible for include credit card balances, mortgages, car loans, etc.

What happens to student loans when someone dies?

Federal student loans are discharged when someone dies. To do so, the family has to apply for a loan discharge due to death and ask for the remaining balance to be forgiven. If the loan was provided by a private bank or agency outside of the federal government, then the loan may still be subject to repayment.

What if a loan was co-signed by someone other than a spouse?

If a loan has a co-signer, the co-signer is responsible for the remainder of the loan after someone passes away; this is called a joint debt. If a parent co-signs a loan for their child and the child dies, the parent will continue to be responsible on the loan. If a parent and their child share a charge account and the parent dies, the child will be obligated to pay off the balance.

If someone has died with credit card or charge account, debt, would their family have to pay it?

The answer is no. According to the Federal Trade Commission (FTC), a surviving relative has no obligation to pay the debts of the deceased unless they signed on the account. Unless they are joint owners of the account, parents have no obligation to pay bills incurred by deceased, adult children, and children are not obligated to pay their parents’ debts.

Can debt collectors call relatives of the deceased and ask for payments?

The Federal Fair Debt Collection Practices Act, which is enforced by the FTC prohibits debt collectors from using abusive, unfair or deceptive practices to collect debts. That does not stop collection agencies from trying to persuade heirs to pay their dead relatives’ obligations.

What if there is an estate, what happens to the deceased person’s debt?

When there is an estate that needs to go through probate, the deceased person’s debts transfer to the probate estate. The estate is a legal entity responsible for carrying on the business of the deceased.

What is the responsibility of the personal representative when there are remaining debts?

The personal representative (executor) is responsible to pay all known bills out of the assets of the estate. The personal representative (PR) must write a letter to all known creditors advising them of the death. They must also publish a notice in a local paper advising all unknown creditors of the death and of their obligation to notify the PR of their claims in the allowed timeframe. A.R.S. Section 14-3801

What if the estate is not large enough to cover the costs of the debts?

If the assets of the estate are insufficient to pay the debts, the PR will exhaust the assets paying creditor claims. The heirs will get nothing, but neither will they be obligated to pay the rest of their dead relative’s bills.

Can debts be taken from a life insurance policy or investment account?

Life insurance proceeds and joint bank and investment accounts fall outside of probate. When someone dies the beneficiaries of their life insurance policy have that money comes directly to them. It does not go through probate and cannot be garnished to pay off the deceased’s bills. Joint bank and investment accounts are treated in the same way. If the deceased has a joint savings’ account with another at the time of their death, the account then belongs to the surviving person listed on the account.

This website has been prepared for general information purposes only. The information on this website is not legal advice. Legal advice is dependent upon the specific circumstances of each situation. Also, the law may vary from state-to-state or county-to-county, so that some information in this website may not be correct for your situation. Finally, the information contained on this website is not guaranteed to be up to date. Therefore, the information contained in this website cannot replace the advice of competent legal counsel licensed in your jurisdiction.