Chances are high that when you pass away, you’ll leave behind at least some debt. In the U.S., valid debts are generally paid from your estate first; survivors usually aren’t personally liable unless they’re co-borrowers/guarantors, subject to community property rules, or otherwise legally obligated. Federal and state consumer rules also restrict what collectors can say to family members and prohibit misrepresenting that they must pay from their own funds when they aren’t legally responsible (CFPB; FTC). Today’s environment matters, too: average credit card APRs have been above 22% in 2024–2025 (Federal Reserve G.19) and 30‑year mortgage rates have generally stayed above 6% since 2023 (Freddie Mac PMMS), which affects how quickly balances grow and how heirs manage secured debts. If your estate could be taxable, 2025 is a pivotal planning year: the federal estate and gift tax basic exclusion is about $13.99 million per person in 2025 (roughly $27.98 million for married couples with portability) and is scheduled to drop after 2025 absent new law (Tax Foundation; anti‑clawback confirmed in Treasury/IRS final regs). We’ve compiled a concise, research‑based overview below; a glossary is below.
Which Debt Is Forgiven After Death?
In most cases, debts with no co-signer and no collateral are paid, if at all, from estate assets and may go unpaid if the estate is insolvent. State probate rules impose strict claim deadlines and priorities that often limit recovery (California Courts). Examples include:
- Some Medical Debt: Medical bills are typically claims against the decedent’s estate, not the personal responsibility of family members. Collectors cannot tell survivors they must pay from their own funds if they’re not legally obligated (FTC). A major exception is Medicaid estate recovery: states must seek recovery for certain Medicaid expenditures (at minimum, long‑term care and related costs) from estates of beneficiaries age 55+ or permanently institutionalized; scope and timing vary by state (KFF). As context, nonprofit initiatives have abolished large volumes of medical debt nationwide (e.g., over $10 billion for more than 7 million people per RIP Medical Debt), but this doesn’t eliminate valid estate claims.
- Federal Student Loans: According to the U.S. Department of Education, federal Direct Loans (and federally held FFEL/Perkins) are discharged when the borrower dies; Parent PLUS loans are discharged if either the parent borrower or the student dies. Servicers accept an original or certified death certificate, or a complete and accurate copy, to process the discharge (see also 34 CFR § 685.212). For federal income tax purposes, most student loan discharges are excluded from gross income through the end of 2025, unless Congress extends the rule (IRS Pub. 970); state tax treatment may differ.
- Certain Personal Loans: Unsecured personal loans without a co-signer are paid, if at all, from estate assets by the executor/personal representative. If the estate is insolvent, these creditors often receive partial payment or none, subject to state priority rules and strict timelines—for example, in California, actions on a decedent’s liabilities are generally barred if not filed within one year of death (CCP § 366.2; see California Courts). Debt collectors must follow federal limits when contacting survivors and stop if they receive a written request (CFPB).
There are important exceptions. In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin; Alaska allows couples to opt in), community assets may be liable for a spouse’s debts, subject to state‑specific procedures (IRS Pub. 555). For example, California law provides that the community estate is generally liable for debts incurred by either spouse (Cal. Fam. Code § 910). Some states also have “necessaries” or filial support doctrines that can create limited obligations in narrow circumstances. If you’re concerned about passing along debt, review your state’s rules and, where applicable, the CFPB’s guidance on spousal liability in community property states (may be required to adopt a spouse’s medical debt or personal loans).
Which Debt Is Passed On After Death?
Secured debts (and any account with a co-borrower/guarantor) usually must be paid if heirs want to keep the collateral. Federal rules help heirs manage home‑secured credit after a borrower’s death: servicers must identify and work with “confirmed successors‑in‑interest” and provide borrower‑like protections (error resolution, information rights, periodic statements) even before a formal assumption (CFPB Servicing Guide; 12 CFR 1024.30(d)). Due‑on‑sale clauses generally cannot be enforced solely because a home transfers to a relative due to the borrower’s death (12 U.S.C. § 1701j‑3). Examples:
- Mortgages: The home secures the loan, so missed payments can lead to foreclosure. However, federal law protects many death‑related transfers, and servicers must engage with confirmed successors. Options typically include assumption (often keeping the existing rate), sale, refinance, or payoff using estate funds (CFPB Servicing Guide; Fannie Mae Servicing Guide; Garn–St. Germain). With 30‑year mortgage rates generally above 6% in 2024–2025 (PMMS), eligible heirs may find assumptions attractive compared to new financing.
- Continue making payments if there is a co-borrower already listed on the account
- Assume the mortgage and continue payment
- Sell the house, refinance, or use estate funds to pay off the mortgage
- Car Loans: Vehicles are collateral for auto loans. If payments stop, lenders may repossess. To keep the car, a co-borrower or heir typically must pay off or assume the obligation subject to lender policy. Elevated interest rates increase the cost of new loans, so verify payoff vs. assumption economics and use estate funds where feasible (FTC).
- Home Equity Loans: HELs/HELOCs are secured by the property and generally must be paid if heirs want to retain the home. Successor‑in‑interest protections apply to home‑secured open‑end and closed‑end credit (Reg X 1024.30(d)). Due‑on‑sale usually can’t be enforced solely due to a protected transfer at death (12 U.S.C. § 1701j‑3). If the property has PACE financing, note that new Truth in Lending Act protections now apply to future originations (CFPB PACE rule).
- Credit Cards: Co-signers or joint accountholders remain liable; authorized users are not. Otherwise, valid balances are paid from the estate, subject to claim deadlines. Given average credit card APRs above 22% in 2024–2025, prioritizing and containing revolving balances is critical for estate liquidity (Federal Reserve G.19; FTC).
How Can I Protect My Loved Ones From Debt?
Build a plan that matches today’s rules and rate environment. Start an up‑to‑date debt inventory (mortgage/HEL/HELOC, auto, credit cards, student and personal loans), align beneficiary and POD/TOD designations, and keep co‑borrowers and your future executor informed. In community property states, analyze debt character (community vs. separate) before paying (IRS Pub. 555). Check state creditor claim deadlines immediately—some are short; for example, California broadly limits actions on a decedent’s liabilities to one year (CCP § 366.2). If the decedent received Medicaid benefits after age 55 or long‑term care, watch for estate recovery notices and hardship waivers (KFF). Because average credit card APRs exceed 22% and mortgage rates remain >6% (G.19; PMMS), prioritize high‑APR balances and maintain home‑loan payments while a successor is confirmed (CFPB Servicing Guide).
Another surefire avenue of providing for your family after your death is to buy a life insurance policy. Term life remains the lowest‑cost way to secure a high death benefit: typical 2025 quotes for healthy non‑smokers buying $500,000 of 20‑year level term are roughly $22–30/month at age 30, $38–48 at age 40, and $90–120 at age 50; women generally pay less, and smokers often pay about 2.5x–4x non‑smoker rates (Policygenius Price Index; Forbes Advisor). Permanent life (whole, UL) costs much more per dollar of coverage but can support lifelong needs and estate liquidity (NAIC consumer guide).
When selecting a life insurance policy, choose a death benefit sized to cover debts, taxes, and administration costs, and to give heirs liquidity during probate (estimate needs with a life insurance calculator or an advisor). If your net worth could exceed the post‑2025 federal exclusion, consider using 2025’s higher exemption to fund gifts or an ILIT for estate liquidity, supported by Treasury’s anti‑clawback regulations (final regs; 2025 thresholds via Tax Foundation and IRS inflation adjustments). The right death benefit helps loved ones retire high‑APR balances quickly and avoid distressed sales.
Glossary of Terms
- Asset — a resource that can be converted to cash (for example, bank/brokerage accounts, personal property, real estate). Nonprobate assets with beneficiary or TOD/POD designations may pass outside probate, though estates still pay valid debts first under state priority rules (California Courts).
- Beneficiary — the person or entity designated to receive assets (e.g., retirement accounts, life insurance) outside probate; keep designations current and consistent with your plan.
- Co-Signer — a co-borrower or guarantor who is legally responsible for a debt. Authorized users on credit cards are not co‑signers and are generally not personally liable (FTC).
- Creditor — the lender or entity to whom money is owed; creditors must follow federal and state rules when contacting survivors and filing claims (CFPB).
- Estate — the collection of a decedent’s assets and legal obligations administered under state law; the estate typically pays valid debts before distributing what remains.
- Executor — the person (or “personal representative”) appointed to manage the estate, notify creditors, handle claims under state deadlines, and distribute assets (California Courts).
- Probate — the court‑supervised process of administering an estate: identifying assets, paying valid debts and expenses in statutory order, and distributing any remainder to heirs/beneficiaries (California Courts).
- Solvent Estate — an estate with enough assets to pay all valid debts and expenses. If assets aren’t sufficient, the estate is insolvent and some creditors may receive only partial payment or none, subject to state priority and “nonclaim” deadlines (e.g., CCP § 366.2).
What’s Next?
- Speak with a financial advisor or estate attorney about your debt inventory, community vs. separate property implications, and state creditor-claim deadlines; if a home is involved, ask the servicer to confirm a successor‑in‑interest and explain assumption options and protections (CFPB Servicing Guide).
- Decide if you fall into the category of people who need life insurance, and size coverage using current 2025 rate benchmarks (see Policygenius; Forbes Advisor).
- If you’re ready to create a financial safety net for your loved ones, get quotes from the best life insurance companies, and, if your estate could be taxable after the 2026 exemption reduction, consider using 2025’s higher gift/estate thresholds to pre‑fund trusts or an ILIT for liquidity (Tax Foundation; anti‑clawback regs). If Medicaid benefits were received after age 55, prepare for possible estate recovery notices (KFF).
