When a person passes away, their estate is obligated to pay any outstanding debts. The person’s estate consists of the assets they owned (money, real estate, vehicles, and so forth) when they died. However, there are wide variations in state and local laws regarding estates and probate (the process by which a will is implemented), and the issues can get murky depending upon individual circumstances.
If there isn’t enough money in a person’s estate to cover their outstanding debts, then – more often than not – the debts remain unpaid and the creditors write deceased debt off as a loss. There are times, however, when a friend or family member may be obligated to pay all or part of the outstanding debt. For example, if you co-signed a loan with the person who passed away, you may be liable for the debt. Again, depending on the state in which you reside, you may have further obligations to pay. Rules differ, for example, in community property states, where the surviving spouse might be liable for the debt of the spouse who passed away. In addition, some states have laws that say that the surviving spouse is required to pay a particular type of debt; more often than not, it’s something like the deceased’s healthcare-related expenses, rather than the deceased’s credit card debt.
When someone dies, there’s a person who is appointed to tie up the deceased’s financial affairs. This person is called the executor. Even if the person who passed away didn’t leave a will, someone will be appointed (perhaps by a court or by other means, depending on the state) or assume the responsibility of handling the deceased’s finances.
