How the Death of a Family Member Can Affect Your Credit

Posted by Erica Steeves on June 18, 2018

How the Death of a Family Member Can Affect Your Credit


As if losing a close family member isn’t sad enough, there’s more than just planning a funeral you may have to worry about. In certain circumstances, you could inherit any debt left behind by a deceased relative – something that can really put a dent into your credit score, especially if this was a financial burden you didn’t expect to have to take on. This post is designed to take a closer look at just what happens when a close family member dies and how it could impact your financial well being.

The Estate

When a person passes away, any outstanding debts are paid for by the estate of the deceased. The estate essentially consists of all the money, assets and investments that belonged to the recently deceased individual, with the exception of life insurance money and retirement savings. If the estate has enough to cover any outstanding debt, then the listed beneficiaries will be privy to whatever is left over. If the estate does not have enough to cover all debts, then the estate will be marked as insolvent. If the estate is marked insolvent, creditors have to write it off, as they’ll be unable to collect it and cannot hold anyone else responsible for it.                                                                                                                                                                                                                                                                                         So how do you possibly factor into this? We examine in the next section.

How You Might be Affected

There are a few ways how you may be responsible for the deceased’s debt:
  • Joint accounts: If you shared an account with the family member, then by law you’re also responsible for that debt. If you want to close the account down, you’ll first have to settle any amounts owed. Joint accounts are common among spouses.
  • Co-signing situations: You’re also on the hook for any loans or credit cards that you co-signed on. In this case, you may not have just co-signed on one with your spouse, but with your children perhaps (i.e., student loans, auto loans, etc.) or with a close family member. As is the case with joint accounts, you’re legally obligated to repay any debt in these situations.
  • Community property states: This is where things can get sticky. If you like in a state designated as a community property state, then you may be held liable for all debts a deceased spouse accrued – even if you didn’t know about or agree to any of it in the first place. Community property designations state that all debts accrued by spouses throughout their marriage are joint – so each individual can be held liable for it. Make sure you understand whether or not your situation qualifies and if you’re residing in a community property state.
  Like we said in the opening, it can already be stressful, sad and life-changing on its own when a close family member dies. Throw in potential financial ramifications, and it just becomes even more complicated. Make sure you understand how any potential death could impact you so you’re better prepared if and when it occurs.