Can You Inherit Your Parents' Debt?

Losing a parent is difficult enough without adding financial confusion to the mix. If you're helping settle your parents’ affairs, you may find yourself staring at credit card statements or a stack of medical bills, wondering what happens to it all. Do you inherit your parents' debt? Does it become your responsibility to pay it off?

When are you responsible for a parent's debt?

Debts don’t go away when a person passes away, but family members don’t usually have to repay a loved one's debt out of their own money. Instead, the debts are owed by — and paid by — the deceased person’s estate.¹ An estate is everything a person owned at the time of their death, including money, property and other assets.²

However, there are limited situations where you may become legally responsible for your parent’s debt.

You co-signed the debt

If you co-signed a loan or credit account with a parent, you agreed to repay that debt if they couldn't. As a co-signer, your responsibility to repay the debt continues even after your parent passes away.

You inherit property with debt attached

In some cases, you may inherit property that your parent was still paying for. For example, the mortgage on your parent’s home may still have a few years left on it, or their car might have an outstanding auto loan. These are examples of secured debt. Secured debt is backed by collateral, which is a valuable asset such as a home or car. If you choose to keep the collateral, and your parent didn’t leave enough money behind to pay off the debt, you generally will need to pay off the debt yourself or refinance the loan in your own name. If you don’t, the creditor could take the collateral to recoup their losses.

Your parent has medical or nursing home debt in certain states

Medical debt generally remains the responsibility of the estate, just like other unsecured debts. If your parent’s medical care was covered by Medicaid, your state’s Medicaid program may try to recover those debts from the estate, but you’re not responsible for repaying these costs out of pocket.³

However, some states have laws that may require adult children to pay for a parent's medical care if the parent can’t afford it. Most of the time, parents in this situation qualify for Medicare, Medicaid or both. If your parent’s care wasn’t covered by Medicare or Medicaid, and you live in a state with one of these laws, you may be responsible for their medical debt.⁴ Laws vary significantly from state to state. If you're concerned about medical or nursing home debt tied to a parent's estate, check your state’s specific laws to learn more.

How does your parent’s estate repay debt?

Settling an estate, including paying a deceased person’s debts, happens through a legal process called probate. During probate, creditors may submit claims against the estate before any assets are distributed.⁵ If your parent left a will, they would have appointed someone called an executor to settle their affairs, including their debts. If your parent didn’t leave a will, the court may appoint a person to act as an estate administrator.⁶

If the estate can cover the debt

If the estate has enough assets to pay off its debts, the executor or estate administrator may use your parent’s checking account to pay any valid creditor claims.^7,8 They may also collect your parent’s assets and possibly sell them to pay lingering debts. Then, the executor or estate administrator will distribute the remaining assets to the heirs.

There are some assets your parent’s creditors can’t claim. These include:^9,10

• Life insurance policies with named beneficiaries
• Retirement accounts
• Revocable living trusts

If the estate can't cover the debt

Sometimes an estate doesn't have enough assets to repay everything your parent owed. Aside from the exceptions for co-signed loans, secured debts and certain medical debts, neither you nor other family members become responsible for unpaid debt when the estate is insolvent.

If your parent’s estate doesn’t have enough money to cover all their debts, some creditors may receive only partial payment or none at all. Credit card debt and other unsecured debt — debt that doesn’t require collateral — may be written off.¹¹

While state laws vary, debts are generally paid from an insolvent estate in this order: ¹²

1. Estate taxes and legal fees
2. Funeral and burial expenses
3. Outstanding federal taxes
4. Medical expenses
5. Property taxes
6. Unsecured debt, like credit cards or personal loans

Are any debts forgiven after death?

Whether a debt gets forgiven after death depends largely on the type of debt involved. Unsecured debts, such as credit cards or personal loans, may be forgiven if your parent was the only owner of the account and their estate can’t repay the balance.

Federal student loans that your parent borrowed for their own education and Parent PLUS loans they used to help pay for yours are generally discharged when your parent dies.¹³ Private student loans, however, are different. Private student loan lenders aren’t required to discharge loans upon a borrower's death, according to the Consumer Financial Protection Bureau. Instead, the lender may try to recover the funds through your parent’s estate.¹⁴

What should you know if a debt collector contacts you?

Getting a call or letter from a debt collector after a parent's death can seem alarming, but it doesn't automatically mean you owe the debt.

Debt collectors may reach out to family members to identify the executor or administrator of the estate.¹⁵ Debt collectors have to follow specific rules under the Fair Debt Collection Practices Act (FDCPA), a federal law that regulates how debt collectors communicate with consumers. If a debt collector contacts you about your parent's debt, you can ask questions, but they shouldn’t discuss the details of the debt if you’re not the executor or the estate administrator.

If you are the estate administrator or executor, ask the debt collector for certain “validation information” about the debt, such as:¹⁶

• The debt collector’s contact information
• How much money your parent owed, including interest, fees, payments and credits
• The name of the creditor

If you review this information and believe the debt is valid, it may be paid from your parent’s estate.

What to do if a debt collector harasses you

When you’re grieving the death of a loved one, you shouldn’t have to deal with aggressive behavior from debt collectors. Under the FDCPA, debt collectors generally can't:¹⁷

• Harass or threaten you
• Misrepresent debts
• Lie to you about your responsibility to repay the debt
• Discuss the details of the debt with anyone who isn’t responsible for repaying debts from the estate

If a debt collector breaks these rules, you may report them to the Federal Trade Commission (FTC).¹⁸

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Every estate is different

In most situations, you don’t inherit your parent's debt. Responsibility for a parent's debt usually comes down to having a specific legal link to the debt, like having co-signed a loan or keeping property with debt attached. Simply being related to someone who owes money isn’t enough.

Every estate is different, and the rules for dealing with a parent’s debt can depend on state law, the type of debt and the assets left behind. Having a general sense of how things usually work can help you feel more prepared to navigate what comes next. However, the probate process can be complicated and understanding your individual legal responsibilities can be difficult. Reaching out to an estate lawyer can help you know what to do to move forward.

Sources

1,6,15,16,17 https://consumer.ftc.gov/articles/debts-and-deceased-relatives
2 https://www.investopedia.com/terms/e/estate.asp
3 https://www.experian.com/blogs/ask-experian/what-happens-to-medical-debt-when-you-die/
4 https://www.justia.com/elder-law/children-caring-for-parents/paying-for-care-of-parents/
5,8 https://www.justia.com/probate/probate-litigation/creditor-claims-against-estates/
7 https://www.irs.gov/individuals/responsibilities-of-an-estate-administrator
9 https://www.investopedia.com/what-happens-to-your-debt-when-you-die-11942079
10 https://www.schwab.com/learn/story/revocable-living-trust-vs-will
11,12 https://www.debt.org/advice/deceased-relatives/
13 https://studentaid.gov/manage-loans/forgiveness-cancellation/death
14 https://money.usnews.com/loans/student-loans/articles/do-student-loans-go-away-when-you-die
18 https://www.consumerfinance.gov/complaint/credit-and-consumer-reporting-complaint-notice-2/