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Debt After Death – What Happens to Your Debt When You Die?

Thinking about what happens after you die can feel painful. How will your loved ones cope and who will take care of them? You might also have concerns about what happens to your debt when you die. Does your debt disappear when you pass or do your loved ones become responsible for it? 

Are Any Debts Transferable on Death in Canada?

You may question if your loved ones will inherit debt when you die. This is a serious worry for many people carrying debt into old age. 

The good news, when you pass away, your family does not immediately inherit debt. Instead, your estate becomes responsible for paying off the remaining debts. To put it another way;  If you die in debt, your assets are used to pay off debt before your beneficiaries receive their inheritance. 

Your estate includes any assets you own at the time of your death, such as: 

  • Bank accounts
  • Investments
  • Real estate
  • Jewelry
  • Retirement saving accounts
  • Cars
  • Furniture
  • Life insurance
  • Government benefits

Who Takes Care of Your Debt When You Die?

Hopefully, before you pass away, you’ve done some estate planning. Ideally, you’ve created a will and assigned an executor. 

An executor is the person who is responsible for administering your last will and testament. Typically, when you write a will, you choose someone to act as your executor. If you don’t assign someone, the government will appoint an individual as your estate administrator.  

The responsibilities of an executor typically include: 

  • Creating an inventory of assets and debts 
  • Ensuring your taxes are filed
  • Gathering names of beneficiaries 
  • Paying off debts
  • Closing accounts 

If your estate does not cover your unpaid debt, debts pay off is prioritized. Typically funeral costs are paid first, other debts, and then your beneficiaries are last. Again, if you don’t have enough assets in your estate to cover your debts, your beneficiaries will not receive anything. 

What Happens to Credit Card Debt After Death in Canada?

When you pass away with credit card debt, your creditors can file a claim to get paid out by your estate. If there isn’t enough money available in your estate, creditors will often write off your debt. Your loved ones will not become responsible for your credit card debt unless you shared a joint account or they co-signed on a credit card. 

Joint or Co-Signed Debt

With joint and co-signed debt, the co-signer becomes responsible for paying off the debt when you die. For instance, if your spouse, partner, or another loved one has co-signed a credit card, personal loan, or mortgage, they become legally responsible for that debt. 

If your loved one can’t afford to pay off the debt, they can speak to a Licensed Insolvency Trustee about their options. An LIT can assess their financial situation and suggest a debt-help solution, such as a Consumer Proposal or Bankruptcy

What Happens to Your Mortgage Debt When You Die?

If you shared a joint mortgage with a spouse or partner, they become responsible for paying the mortgage when you die. If you listed your children or someone as the beneficiaries of your home, they can choose to continue paying your mortgage or sell the house to pay it off.  

When you are the only one listed on the mortgage, your loved ones do not become responsible for your mortgage debt. In this case, the lender will likely repossess the home.  

What Debts Are Forgiven at Death?

Unfortunately, when you die, your debts don’t just disappear. If you have assets in your estate, then these assets are used to pay off your debts before your loved ones receive any inheritance. 

It’s only in the event that you don’t have enough assets to pay off your credit card debt that your debts die with you. 

How to Prevent Loved Ones From Inheriting Debt When You Pass Away

There are several actions you can take to prevent your loved ones from inheriting your unpaid debt when you pass, including: 

  • Speak to a Licensed Insolvency Trustee. If you are worried about your debt, consider taking a proactive step and speaking with an LIT. An LIT can assess your debt situation and help you find debt relief now instead of worrying about what will happen when you’re gone. 
  • Consider insurance. Certain types of insurance, including life or mortgage protection insurance can help to cover your debts when you die. 
  • Assess co-signed assets. If you share joint accounts or have co-signed credit cards, consider what this will look like after death. Your joint account holder or co-signer will take on the responsibility of this debt when you’re gone. Can they afford it? 
  • Create a will. If you don’t have a will, this is your reminder to create one. A will gives you a say in how you want your assets to be distributed when you die. This also gives you the opportunity to assign an executor to your estate rather than having the government assign someone.  

Death and Debt: How a Licensed Insolvency Trustee (LIT) Can Help

If your estate doesn’t cover your debt in death, your executor can contact a Licensed Insolvency Trustee to discuss the option of Bankruptcy. As a qualified debt professional, they can assist you with your debt throughout your life and after death. An LIT can help your executor navigate your debt and apply for Bankruptcy. Taking on the job of executor is a big and complex job. An LIT can reduce the burden of responsibility and help execute many of the executors’ tasks. 

At Allan Marshall & Associates, we are here to help with all your debt needs. Give us a call today for a free, no-obligation consultation at 1-888-371-8900 or contact us online. We can help you answer the question, “what happens to your debt when you die?” We can also discuss solutions for how to get out of debt today so you can start living your best financial life and stop worrying about debt after death.

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Francyne Myers, JD, CIRP, LIT

Francyne spent many years in senior positions with the Office of the Superintendent of Bankruptcy. During the course of those years, she also found time to study Accounting at Saint Mary's University and attend the Schulich School of Law (formerly Dalhousie Law School) to earn her degree in law (J.D). In 2012, Francyne left public service life and joined Allan Marshall & Associates Inc. where she completed her education becoming a Licensed Insolvency Trustee in 2013. She is actively involved in her local Trustee Association and enjoys helping others find solutions to their financial problems.