Many people are concerned that when they die, their heirs will inherit their debt as well as the rest of their possessions, but this is rarely the case. In most cases, the debt becomes the responsibility of the estate, which consists of the possessions and financial assets of the deceased. The estate must pay off all debts owed by the consumer before any remaining assets can be passed on to their heirs. Following a death, a notice must be posted in the local newspaper, calling for lenders to come forward and make their claims. The amount of time allowed for this varies from state to state, but once the period is over, the estate will not consider additional debts.
There are some exemptions to what is considered part of the estate. Retirement accounts and life insurance payouts, for example, are not. Once all the estate’s assets are gone, whatever debt remains goes unpaid.
There are exceptions to these rules. In some states, if the deceased was married, the debt passes to the spouse via community property law. If anyone else cosigned on a loan, the cosigner takes on all the debt. The estate will pay credit card debt and auto loans in most cases, but mortgages can be more complicated in certain situations. Student loans are forgiven if they are Federal loans, but private loans may be treated differently.