Episode 04
Do You Inherit Your Parents’ Debt?
A letter arrives about the credit card balance of someone in your family who just died. Do you owe it? Generally, the debt stays with the estate. Here’s who pays, in what order, the exceptions where a family member can owe, and what to do when a collector calls.
Key points
- The CFPB says that when someone dies, their debts are generally paid out of the money or property left in their estate, and survivors generally aren’t responsible for them unless they shared responsibility for the debt or fall within an exception. [F1, F2, F3]
- The estate pays according to state law, in an order the law sets. The Uniform Probate Code (2010 version), a model law, and Texas each have their own order. [F3, F4, F5]
- The exceptions the CFPB lists: you co-signed or were a joint account holder; or, for a surviving spouse, living in a community-property state or a state with necessaries laws, where a spouse might be responsible. Being an authorized user generally doesn’t make you owe. Separately, in Pennsylvania, a spouse, child or parent can be responsible for supporting a relative in need, unless they can’t afford it; that isn’t the same as inheriting a debt. [F2, F6, F7, F10]
- Being the executor lets a collector contact you about the debts, but under the CFPB’s guidance, collectors aren’t allowed to say or hint that you have to pay from your own money. [F11, F12]
- In Texas, life insurance paid to a named beneficiary and retirement accounts are exempt from seizure for debts, with exceptions. Under the 2010 version of the Uniform Probate Code, a model law, someone who receives money outside probate can be liable to the estate if it comes up short, up to the value they received, unless another statute says otherwise. [F17, F18, F19]
Episode notes
The question that started it
The episode started with a real question on Reddit’s estate planning forum, paraphrased here. Someone in California wrote that after their sister died, the card company sent them a letter about the balance on her card, saying they were the one responsible for the estate’s financial decisions. There was no will, no trust and no probate, so they asked whether anyone was technically the executor. It was a sister’s card, not a parent’s, but the CFPB’s general rule is about survivors of any loved one. [F2] We won’t answer their case for them, and California’s own statutes aren’t covered here.
The estate pays first
The CFPB says that when someone dies with an unpaid debt, it should be paid from any money or property they left behind, according to state law, and that’s called their estate. [F3] If there’s nothing left, or the estate can’t pay, the debt generally goes unpaid. [F3] That’s assuming no one else shared responsibility for the debt. [F1]
Who gets paid first
The estate doesn’t simply pay whoever calls first. Two examples of a payment order, each labelled with its source:
Uniform Probate Code (2010 version), a model law
- The costs of running the estate
- Reasonable funeral expenses
- Debts and taxes with priority under federal law
- Medical and hospital bills from the last illness
- Debts and taxes with priority under other state law
- All other claims
Texas Texas’s own order
- Funeral expenses up to $15,000 and last-illness expenses up to $15,000
- Allowances for the surviving spouse and children
- The costs of running the estate
- Other claims, by class
That’s the CFPB’s point in practice: when state law pays survivors before other creditors, there might not be any money left over to pay debts. [F3, F5]
The core rule
The CFPB says survivors, including spouses, aren’t responsible for a deceased loved one’s debts unless they shared legal responsibility for repaying, as a co-signer or a joint account holder, or fall within another exception. [F2] Another CFPB page puts it this way: generally, no one else has to pay back debts for a person who has died, though there are some exceptions that vary by state. [F3]
The exceptions
You signed for it
If you co-signed the loan or were a joint account holder, you shared legal responsibility for repaying, and the CFPB says that’s when a survivor can owe. [F2] Being an authorized user is different: the CFPB says being an authorized user on a deceased relative’s credit card generally does not obligate you to pay the debt. [F7] And if a collector insists you co-signed but you believe you didn’t, the CFPB says you can ask for evidence, such as a copy of a contract you signed. [F7]
Spouses
The CFPB lists two more situations where a surviving spouse might be responsible: living in a community-property state, where spouses share responsibility for certain debts created during the marriage, and living in a state with necessaries laws, which say parents and spouses are responsible for certain necessary costs, such as healthcare. [F6] The Internal Revenue Service lists nine community-property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. [F9] Those points come from the CFPB’s page about spouses; they aren’t about adult children. [F6]
Texas only · rules vary by state
In Texas, a person is personally liable for a spouse’s acts only if the spouse acted as their agent or took on a debt for necessaries, and a spouse’s separate property isn’t subject to the other spouse’s debts unless both are liable under other law. [F8] Those Texas sections are written about living spouses; how they apply after a death, we won’t guess at here. [F8]
A Pennsylvania support law
Pennsylvania only · rules vary by state
What we call a filial responsibility law is a law about supporting a family member in need. In Pennsylvania, a spouse, child or parent of an indigent person has a legal responsibility to care for, maintain or financially assist that person, unless they don’t have the financial ability, and a child isn’t liable for a parent who abandoned them for ten years during the child’s minority. [F10] A court sets the amount. [F10] That’s support for a family member in need, decided by a court. It isn’t the same as inheriting a parent’s credit-card bill. [F10]
What being the executor means
Under federal debt-collection law, the contact rules count the consumer’s executor or administrator as the consumer, and the federal regulation’s commentary includes people with authority over a deceased person’s estate, such as people who sign affidavits to transfer estate assets. [F11] So a collector can contact you to discuss the debts, but the CFPB says collectors aren’t allowed to say or hint that you’re responsible for paying with your own money. [F12] Whether an executor can become personally liable for mishandling an estate wasn’t part of our research, so we won’t say either way.
When a collector calls
Federal rules say a debt collector must not use any false, deceptive or misleading representation in collecting a debt. [F13] Those rules cover debt collectors as federal law defines them, which isn’t necessarily the original card company. [F13, F20] The CFPB also warns that some scammers check obituaries and pose as debt collectors, and if a collector knows you’re the surviving spouse or personal representative but won’t give you details about the debt, you could be dealing with a scam. [F15]
The CFPB’s steps: [F14]
- Don’t give out your Social Security number, birth date or account numbers unless you know who you’re dealing with.
- Get the details in writing; in most circumstances, a legitimate collector must give them in the first conversation or within 5 days.
- If you don’t believe you’re responsible, dispute the debt in writing within 30 days or by the deadline on the validation notice, and the collector must stop contacting you until it validates the debt in writing.
- You can send a written request to stop contacting you.
- Talk with a lawyer.
Money paid to a named person
Texas only · rules vary by state
In Texas, life-insurance and annuity benefits belong to the beneficiary designated in the policy and are fully exempt from seizure to pay a debt of the insured or of the beneficiary. [F17] Also in Texas, retirement plans and individual retirement accounts, or IRAs, including inherited IRAs, are exempt from seizure for debts, and an interest you get because of someone’s death is exempt to the same extent it was for the person who died. [F18] Both Texas laws have exceptions we haven’t listed, and this assumes the policy names a person. [F17, F18]
Under the 2010 version of the Uniform Probate Code, a model law, someone who receives money outside probate at a death can be liable to the estate for allowed creditor claims and family allowances if the estate comes up short, up to the value they received, unless another statute says otherwise. [F19] So money paid to a named beneficiary is often protected, but not automatically everywhere. [F19]
Back to the letter
Do you owe it? Generally not from your own pocket, unless you shared responsibility for the debt or fall within an exception like the ones above. [F2, F3] It’s the estate’s debt first, paid in the order state law sets. [F3] Before paying anything from your own money, get the details in writing and find out whether you actually owe it. [F14] As for the Reddit question about who the executor is, that’s one for a California lawyer.
Sources
- Does a person’s debt go away when they die?, Consumer Financial Protection Bureau (Ask CFPB #1463)
- Can a debt collector contact me about a deceased relative’s debts?, Consumer Financial Protection Bureau (Ask CFPB #1469)
- Am I responsible for my spouse’s debts after they die?, Consumer Financial Protection Bureau (Ask CFPB #1467)
- I was an authorized user on my deceased relative’s credit card account. Am I liable to repay the debt?, Consumer Financial Protection Bureau (Ask CFPB #1485)
- Is it a scam if a debt collector calls me after seeing my relative’s obituary?, Consumer Financial Protection Bureau (Ask CFPB #1483)
- Uniform Probate Code (1969), Last Amended or Revised in 2010, with Comments (PDF), §§3-805, 6-102, Uniform Law Commission (model law, not itself enacted law)
- Texas Estates Code chapter 355 (§§355.102, 355.103), Texas Legislature (Texas Constitution and Statutes)
- Texas Family Code chapter 3 (§§3.201, 3.202), Texas Legislature (Texas Constitution and Statutes)
- Publication 555, Community Property, Internal Revenue Service
- 23 Pa.C.S. §4603, Relatives’ liability, Pennsylvania General Assembly
- 15 U.S.C. §1692c, U.S. Code, via Cornell Law School Legal Information Institute
- 12 CFR part 1006 (Regulation F), incl. §§1006.2(i), 1006.18, 1006.34(b)(4) and Supplement I, comment 6(a)(4)-1, Electronic Code of Federal Regulations (eCFR)
- Texas Insurance Code chapter 1108 (§1108.051), Texas Legislature (Texas Constitution and Statutes)
- Texas Property Code chapter 42 (§42.0021), Texas Legislature (Texas Constitution and Statutes)