Americans are, quite literally, getting buried in debt, with nearly half expecting to pass away with outstanding debts.

As a general rule, a person's debts do not go away when they die. Some types of debt, such as federal student loans, are typically forgiven upon the debtor's death, but private loans and cosigned accounts may still be owed after the debtor has passed away. State laws also play a factor in the post-death debt settlement process.

While nearly half of Americans think they will pass on their debts when they die, you can take proactive steps now to protect your loved ones from inheriting or becoming responsible for your debts. If you are an estate's executor/personal representative or have been contacted by a debt collector about a deceased family member's debt, you should understand your rights and obligations.

One Nation, Under Debt

Debt is as old as civilization itself. Lending at interest can be traced back to ancient Mesopotamia and the use of promissory notes to facilitate trade. The United States has carried debt since its inception, borrowing money from domestic investors and the French government to fund the Revolutionary War.

Total consumer debt eclipsed $17 trillion in 2023, up from $15 trillion in 2021, according to credit reporting agency Experian. The largest and most common debts include:

• Mortgages ($11.5 trillion in 2023)

• Auto loans ($1.51 trillion)

• Student loans ($1.47 trillion)

• Credit cards ($1.07 trillion)

• Personal loans ($571 billion)

The total average individual debt balance in 2023 was $104,215, up from $101,915 in 2022 and $96,371 in 2021.

According to Debt.org, 73 percent of Americans die owing money. The average amount of debt they die with is nearly $62,000.

What Happens to Your Debt When You Die?

The answer depends on factors that include the type of debt and the state where you live. In most cases and most states, your loved ones are not stuck with your unpaid bills because creditors are paid only from the assets (e.g., a home, car, bank accounts, investment accounts) that are:

1. Part of your probate estate and go through a probate court, or

2. In your revocable living trust.

If you do not leave behind enough assets in your probate estate and living trust to fully cover the debts owed, creditors may have to settle for what is available. However, there are exceptions:

• Cosigners on Loans: If someone cosigned a loan with you, they are legally responsible for the debt.

• Community Property States: In states like Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, spouses may share responsibility for debts incurred during the marriage.

• Medical Bills: Some states require a surviving spouse to pay certain healthcare expenses of the deceased.

Surviving spouses and adult children are frequently contacted by debt collectors attempting to collect on bills for the medical care of their deceased loved one. However, unless the survivor also agrees to the medical debt or is responsible under state law, they are generally not liable for the debt.

Not All Debts Go Away at Death

Certain debts are forgiven upon death, such as federal student loans, provided the loan servicer receives proof of death. Private student loans may not be forgiven, and lenders might pursue repayment from the cosigner or the estate.

Secured Versus Unsecured Debt

Secured Debt: Backed by collateral, such as mortgages or car loans. If the estate lacks sufficient assets to cover these debts, lenders may seize the collateral.

Unsecured Debt: Includes credit card balances and personal loans, which are lower priority in probate. If the estate lacks funds, unsecured creditors may not be repaid in full.

How to Plan for Debt and Leave More Money for Your Loved Ones

Your outstanding debt could create complications for loved ones. If you do not pay off your debts during your lifetime, your family may be left dealing with creditors or insufficient inheritance. Here's how to prepare:

• Understand Debt Collector Rules: Debt collectors have legal limits on who they can contact and how. Ensure your family is aware of these rights.

• Protect Beneficiaries: When heirs inherit a home or other assets with outstanding loans, they must be prepared to manage the debt. Options may include assuming the mortgage or selling the property.

• Work with Experts: Consult an estate or trust administration lawyer to navigate complex state laws and resolve debts properly.

Estate planning is about the legacy you leave behind. If that legacy includes debt, an estate planning attorney can help you manage it effectively or support your family in dealing with the consequences after your passing. Call us today for assistance with your estate planning or debt resolution.