Do you inherit debt from parents?

Written by miriam c
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Do you inherit debt from parents?
A parent's debts cannot be passed to her children. (grand parents at home image by Daria Miroshnikova from

Many children may worry that they will be strapped with any debt their parents have accrued over their lifetime. Fortunately, debt does not transfer to your descendants when you die. Children will not be held liable for any outstanding debts a parent may have. However, it may limit the amount they receive as an inheritance, since all assets will need to stand for the debt.

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Debt Is Non-Transferable on Death

Debt cannot be transferred after death to the heirs or children of the person who died. The debt will end with his death after the estate has been settled. Fortunately for children of the deceased, they will not be held liable for outstanding bills due. However, this applies only to debts that are only in the name of the deceased. If the debt has more than one name on it, then the co-signer is fully liable for the debt.

Assets Must Stand for the Debt

When settling an estate after someone dies, all the assets must stand for the debts the person accumulated before he died, before anyone can inherit any money from the estate. For example, if someone had an outstanding car loan, credit card debt and money in a savings account, then the money in the savings account must go toward paying off the debt before it can be given to any heirs. Similarly, assets like a house or car must be sold to pay for outstanding debts before they can be transferred to heirs. Any money remaining after the debts have been paid for can be distributed to the heirs.

Cosigning on a Debt Makes You Liable

Cosigning for a loan with your parents does make you liable for the debt when one of them passes away. This means if you signed to help your father qualify for a car loan, you will be responsible for paying it off when he dies. You have the option of selling the item to pay for the debt, but you will still be responsible for the remaining balance. If you are both owners of a credit card account, you will be held responsible for the outstanding amount due, regardless of whether you made the charges on the account.

Settling an Estate Will Take Care of the Debt

When you settle the estate, it will take care of the outstanding debt. The executor of the estate will need to send a copy of the death certificate to all the banks that have outstanding accounts for the deceased. Once the assets are sold, then the executor will pay off all of the credit card accounts. If the estate runs out of money, then the executor will need to send a letter explaining that the assets will not cover the accounts, and request that the accounts be closed. This will cancel the debts permanently.

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