What happens to debt after someone dies?
In Canada, debts don’t automatically transfer to family members after death. Instead, outstanding debts are typically paid from the deceased’s estate, the total value of their assets, including money, property, and investments. Only after all debts are settled can remaining assets be passed on to heirs.An executor, either named in the will or appointed by the courts, is responsible for managing this process. They gather the assets, pay off creditors in a legally defined order, and distribute what’s left to the beneficiaries.
If the estate doesn’t have enough funds to cover all debts, creditors usually write off the unpaid amounts. This means surviving family members are generally not personally responsible for paying off a deceased parent’s credit card balances or unsecured loans.
Exceptions: When you could be liable
There are important exceptions. If you co-signed or jointly held any loans or credit cards with your parent, you remain legally responsible for the debt. That means if your name is on the account, creditors can pursue you for payment even after your parent’s death.
Common types of debt?
- Credit Card Debt: Paid from the estate first. If insufficient funds remain, the debt is written off. But joint cardholders remain liable.
- Mortgages and Home Loans: Typically, if you’re a co-signer or spouse, you continue payments. Otherwise, the estate may need to sell the property to pay off the mortgage.
- Auto and Personal Loans: Secured loans like car loans can result in repossession if unpaid. Unsecured loans are paid from the estate if possible.
- Student Loans: Federal and most provincial student loans are forgiven upon death, but private loans may still require repayment.
- Joint Accounts and Co-signed Loans: The surviving borrower takes full responsibility.
How to protect yourself and your family
- Create a will: Clearly outline how your debts and assets should be handled.
- Name an executor: Appoint someone you trust to manage your estate and debt repayment.
- Consider life insurance: Policies can provide funds to cover outstanding debts and funeral expenses.
- Share account details: Give trusted family members or your executor access to important financial information.
No one likes to think about death, but planning ahead can ease the burden on your loved ones. In most cases, you won’t inherit your parent’s credit card debt unless you are a joint account holder or co-signer. Understanding your legal responsibilities and preparing accordingly ensures that grieving families don’t face unnecessary financial stress.
