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Who Pays When Parents Die With Debt?

Some people worry that if their parent dies with debt, that they will be responsible for paying it off. In most cases, this is not true. In the probate process, when a person dies, their assets become part of the estate, and it's the value of the estate that pays for any debt the person who has died still owes. Whatever is left after the debts are paid then gets distributed to designated beneficiaries. In situations where debt exceeds the value of the estate, children may not end up inheriting anything. But unless children are joint owners of the debt, it's the estate that will pay, and not the children themselves.

Let's take a look at how three types of debt are handled in probate when a parent dies.

Credit card debt. Unless a child has signed onto a joint account with a parent, they will not be responsible for paying off the balance when the parent dies. Those with joint accounts with the deceased, however, remain responsible for the debt left behind, whether the cosigner was a spouse or a child or a business partner.

Mortgage debt. Unless children are cosigners on a parents' home loan, they will not be required to make payments after the death of a parent or parents. There are some circumstances, however, where it might be beneficial for a child to be a cosigner on the mortgage. For example, if an adult child lives with a parent with a mortgage, and that mortgage is not paid off, when the parent dies, the adult child would have to move if the value of the estate (or life insurance policy) did not cover the remaining cost of the mortgage. By cosigning the mortgage, the child would be able to stay in the house and just continue making payments.

Car loans. This kind of debt operates in the same way as credit card debt. That is, any remaining balance owed on the loan will be the responsibility of the estate, not the children, unless children have co-signed the car loan.

While the specifics of each probated estate need to be worked out on a case-by-case basis, children need not worry about paying the debts of their parents unless they have specifically signed on a co-owners of that debt.

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