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This is What Happens to Debt When You Die

Amy Danise

Many debts do not die with you. Instead, your estate is responsible for them. The executor of your estate, who you name in a will, is supposed to pay off debts. Here’s a summary of exactly which debts will pass to others and which will die with you.

Credit card debt

Does it die with you? No.

Who inherits credit card debt? A joint account holder on the card or your estate.

Anyone who's a joint account holder on credit cards -- such as a spouse -- will be responsible for the debt, even if they didn't personally make the charges. People who are simply "authorized users" on a credit card do not inherit the debt.

If there's no joint account holder, the debt will need to be paid out of your estate. And if you have no estate, or the estate runs out of funds, credit card companies generally have to eat the balance.

In a state with a community property law, debt run up by only one spouse could pass to the other. Because these community-property state laws vary, check with an attorney to see if you're responsible for a spouse's debt before assuming you're on the hook.

Student loan debt

Does it die with you? It depends on the loan type. Only federal student loans and certain private loans are discharged upon death.

Who inherits student loan debt? Co-signers, a spouse (in a community property state) or your estate will inherit any types of student loan debt.

A federal student loan is discharged upon the death of the student. If a student's parent took out a federal PLUS loan, that debt is discharged upon the death of either the student or the parent. Here's more from the U.S. Department of Education.

Some providers of private student loans, such as Discover and Sallie Mae, forgive the debt if the student dies.

If you are co-signor on a private student loan that's not discharged, you are responsible for the debt if the student dies.

A spouse is responsible for undischarged private student loan debt if you live in a community property state and the student loan was taken out during marriage.

A mortgage

Does it die with you? No.

Who inherits mortgage debt? A joint homeowner or your estate.

A joint homeowner will inherit mortgage debt. If there's no joint homeowner, the mortgage can be paid out of the estate.

If you inherit a house, you can take over the mortgage payments.

A federal law known as Garn-St. Germain prohibits lenders from demanding immediate payment of a full mortgage balance when a house title is transferred to a co-owner or heir.

A car loan

Does it die with you? No.

Who inherits car loan debt? Your estate -- or whoever wants the car.

A car loan balance can be paid from your estate. Because a car loan is a "secured loan," if payments stop the lender could repossess the car.

If an heir wants the car, they can usually contact the lender and say they want to continue the payments, and the car title can be transferred to them from the estate.

Make sure to keep auto insurance on the vehicle while loan payments are being worked out. And if you take over title to a car, you'll need to get insurance in your own name.

Using life insurance to cover debts

Many people buy life insurance so that family members have a way to pay debts after they die. For example, if your spouse would have trouble paying the mortgage if you died, life insurance can provide funds so they don’t lose the house.

Term life insurance, in particular, is well-suited for people who want to cover specific financial obligations. That’s because you can align your term life policy amount and term length to the amount and length of your debts.