CAN YOU INHERIT DEBT FROM YOUR PARENTS?

 

In the event of a parent's death, the question on children's minds is whether they will inherit the debt of their parent. The short answer is no—children typically do not inherit debt from their parents. Debt is not passed from one individual to another like jewelry or houses. Instead, debts that the deceased person leaves behind are settled out of his or her estate. The estate is everything money, land, and other property a person owned when he passed away. In case the estate has an adequate value in order to settle the debt, the creditors will receive payment from those assets before any can be distributed to heirs. But if the estate does not have enough money or assets to settle the debts, then the debts usually go unpaid and are defaulted by the creditors.

It is worth mentioning that debt collectors may still contact surviving spouses and other relatives to recover the debt. But if you were neither a co-signer, joint account holder, nor otherwise legally obligated for the debt in some way, you are not required to pay it. Just because you are the child of the deceased does not automatically make you responsible. Exceptions, however, do apply. In community property states like Texas or California, a surviving spouse is responsible for debts entered into during marriage. Furthermore, if you co-signed on loans or credit agreements with your parent, you may be responsible for that specific debt.

Student loans are also a problem. Federal student loans are cancelled in the event of the death of the borrower, so the family and estate don't have to repay them. Private student loans vary from lender to lender. Some will request repayment from the estate, or a co-signer if a co-signer was employed.

It's sad enough to lose a parent, but being informed about how debt is handled in a legal case can prevent unnecessary stress. If, in the future, you are approached about a deceased parent's unpaid debt, it is wise to ask for written confirmation of your legal responsibility. If there is no such document, you can typically refuse payment. Consulting with a probate attorney or financial planner will also dispel anxiety and provide advice. Usually, debts are paid by the estate of the deceased, rather than by his or her surviving relatives. Understanding your rights and the law can empower you to make sound decisions during a challenging moment.