What Types of Debt Can Be Discharged Upon Death?

When someone dies, his assets pass into his estate along with his liabilities. A will normally determines how the assets are to be distributed. What he owed when he died generally must be paid before his heirs get their share. If the assets are distributed to his heirs before the debts are paid, the heirs may have to pay the debts from their share of the assets.

Secured Debt

If the deceased died with a mortgage on her home, whoever winds up with the house is responsible for the debt. If the house was owned jointly, the survivor is still on the hook for the mortgage. That’s because the house is security for the debt. If the debt isn’t paid, the bank will take the house and sell it to satisfy the mortgage.

Unsecured Debt

Any unsecured debt, such as a credit card, has to be paid only if there are enough assets in the estate. Unless there was a co-signer, no one else has to pay anything on a credit card. Some collection agencies would like the heirs to believe they are liable to pay from their own money, but that's only possible if they inherit something from the estate before the debts are paid.

Student Loans

Normally, student loans always have to be repaid. However, student loans will be forgiven upon the death of the borrower, or in certain cases, the borrower’s parents. Proof of death has to be provided to either the school (Federal Perkins loan) or the lender (FEEL or Direct Stafford Loan).

Taxes

Not only do taxes not disappear upon death, they may increase. Income taxes have to be paid on the deceased’s last return. The estate has to pay taxes on any income earned after death, and the heirs may have to pay income tax on any income they may have inherited. The estate’s assets may also be subject to an estate tax on their value, which is separate from the income tax. This is a very complex area, and you shouldn't face it without the advice of an accountant or attorney.

About the Author

Richard Friedkin has many years of experience as a Certified Public Accountant, a Certified Financial Planner and a corporate CEO. He has been a writer for more than 30 years, writing everything from dense technical memos to whimsical children's stories. Friedkin's work has been published locally and performed on stage.