What Happens to Debt When Someone Dies?

^{The fate of a person’s debts after they die depends in part on what they owned. MicroStockHub/iStock via Getty Images Plus}

James Malm, associate professor of finance and director of the College of Charleston Global Business Resource Center, has published an article for The Conversation that answers a question submitted to the Curious Kids series by Luci, age 17, in Cincinnati: What happens to debt after we die?

The topic is important, explains Malm in the article, because about 73% of Americans die with some unpaid debt – and each year in the United States, about 160,000 to 340,000 people die with more debt than assets.

Malm, who teaches and studies how money works, explains that most debt does not disappear when a person passes away, but it also does not automatically become the responsibility of family members. Instead, debts are generally handled through the deceased person’s estate – the collection of assets and liabilities they leave behind.

Although many people believe debt is either automatically erased at death or automatically inherited by family members, in reality, the outcome depends on the type of debt, the assets in the estate and whether anyone else is legally connected to the obligation. Most often, creditors look to the estate – not the deceased person’s relatives – for repayment.

“Although this topic is sad, it’s a good reminder that having money comes with responsibilities and that planning ahead can protect your loved ones,” concludes Malm. “I also think that understanding how things work, even after death, can make what you need to do in your lifetime much clearer and less overwhelming.”

Read the complete article on The Conversation.