Can my loved one’s debts be forgiven?

Key takeaways about claims to estate debt

• Most debt belongs solely to the estate; there are only a few exceptions to this, including debt acquired during marriage in a community property state and co-signed debt.

• Secured debt is typically not forgiven, but sometimes unsecured debt will have to be written off if the estate is insolvent.

• The Medicaid Estate Recovery Program applies to certain elder care expenses and may have to be repaid like a loan.

• Companies that have no legal right to be paid may still try to aggressively pursue repayment.

If a loved one’s passing has left you with concerns about finances and debt, those worries can significantly add to your burden, especially while you’re still grieving. Plus, if you’re the executor of the estate, you likely have questions about how to manage it all, especially when you might be doing your best just to get through a regular day. Before you try to tackle this moment, remember that you’re not alone. Many people have been where you are, and there are robust legal structures in place to help.

When your loved one passed away, they left behind an estate. This may contain most of their property and assets, but doesn’t usually include things like anything held in a trust, their 401(k), or life insurance benefits. During the probate process, a court will reconcile creditor claims with what remains in the estate, and the debts will generally be paid out solely from the assets in the estate. There are some exceptions to this rule, however. Any debt acquired during marriage in a community property state, for example, become the responsibility of a surviving spouse, to be paid out of their community assets. Loans with a surviving co-signer will the responsibility of the co-signer. And there are other less common cases in which a family member or beneficiary might be required to pay back certain debts.

Secured vs. unsecured debt

Some debts, like car loans and mortgages, are “secured,” meaning that the borrower has specific collateral that can be repossessed if loan payments aren’t made. These obligations will not be forgiven in any case. The debt remains attached to the asset such as the house the mortgage is on, and either the person who inherits that property will have to assume the debts, or it will have to be sold (or repossessed) to pay off the debt.

Other debts, like credit cards and student loans, are “unsecured” debts (i.e. loans made based only on an assessment of whether or not the borrower can theoretically repay the loan). As such, these debts may not always be paid if someone passes away without enough assets to cover them.

Debt that doesn’t get paid

If your loved one left behind an unsecured debt, and the probate process reveals that there isn’t enough money in the estate to fully pay it back, or if the lender doesn’t make a claim against the estate before all assets are distributed to beneficiaries, in most cases the debt simply will not be paid. The creditor will not be able to press their claim and will essentially have to forgive the debt.

Even in a community property state, sometimes lenders will discharge debt if the surviving spouse attests during probate that there isn’t enough money in the estate to meet the commitment. If you decide to pursue this route, it’s a good idea to consult with an attorney. Your chances of convincing a lender to forgive your spouse’s debt may be greater if you seek legal counsel.

Note that this does not apply to co-signed lines of credit. Those will continue to be your legal responsibility if the estate cannot settle them.

The Medicaid Estate Recovery Program

States are required by law to seek reimbursement for certain elder care expenses that Medicaid pays for after age 55. If your loved one had a modest income and received care through this public insurance program, it will be treated as a loan to be repaid from their estate. States are not able to claim assets from surviving spouses, children under 21, or disabled children, but they may be able to claim the assets from that survivor after they pass away themselves. Sometimes, a lien is placed on the home of a person in a nursing facility in order to make sure they do not give the house away to a family member before they pass away.

The usual method for shielding assets from the collection of debt during probate, a living trust, doesn’t always work in this situation. If the existence of such a trust doesn’t immediately disqualify someone from Medicaid, many states will still use an “expanded” definition of the estate to make claims on assets in any revocable trusts. Generally, only an irrevocable trust can guarantee that your loved one’s assets can’t be touched by the state after their passing. The tricky part is that they can’t be touched by your loved one before their passing, either.

As with any debt, Medicaid will write off these losses if your loved one’s estate is insufficient to cover them.

If your loved one was on Medicaid and you’re unsure of what to do now, it is a good idea to speak with an attorney.

The special case of student loans

If your loved one had outstanding student loans—another kind of unsecured debt—many private lenders and all public lenders automatically forgive these debts when a person passes away. For parent PLUS loans, which supplement student financial aid but are taken out by parents rather than students, the debt is forgiven if either the child or the parent passes away. However, in community property states, if one takes out a student loan while married, the spouse can be called upon to pay the debt. In this case, it’s still possible to request that the loan be forgiven, as mentioned above.

If credit card companies still want payment

After probate, credit card companies have no legal recourse to recoup any remaining unpaid balances. But that doesn’t mean they won’t try. Creditors are notorious for aggressively pursuing repayment from surviving relatives—generally through telephone calls, though in-person interactions have also happened. If this happens to you, try not to be intimidated. Speak to a lawyer if you have any concerns. And you can take action: First, request via certified letter that the company stop contacting you. Then report the creditor to your state attorney general's office and file a complaint with the Federal Trade Commission.

This may feel like a lot to handle right now. Keep in mind that, when your loved one passed away, their lenders were required to stop charging interest or late fees, so you have some time to grieve before you have to figure it all out. That may not make it any easier to come to terms with the financial implications of your loved one’s passing, but the law does offer you protections as you move through this difficult time.

You may be eligible for free bereavement support. Empathy can help with everything from funeral planning to estate administration, with step-by-step guidance and real-time expert support. Many people get free premium access to Empathy as a benefit with their life insurance claim. We partner with New York Life, Guardian Life Insurance Company, Bestow, Lemonade, and other leading carriers. When you make your life insurance claim, talk to your representative about whether Empathy is a benefit they offer.