People who live in California and must manage the estate of a loved one or who are making their own estate plans should have a good understanding of what exactly happens to a person’s debt after they die. After a person dies, most people tend to put energy focusing on the distribution of assets to heirs. However, while most debts do not get passed down to one’s children or other surviving heirs, they must be addressed.
As explained by WalletHub, all debts associated with a person’s estate must be settled before the transfer of any assets. There are some exceptions like the payment of life insurance benefits. Since assets can and must be used to pay debts, this may reduce the overall value of the estate and therefore reduce how much any heirs may receive.
When it comes to how debts are handled, the Federal Trade Commission does indicate that heirs are protected by the Fair Debt Collection Practices Act and should therefore not expect to be harassed by debt collectors seeking payment from their deceased loved one.
Because California is a community property state, a spouse may be held liable for the debt of their deceased spouse. Mortgage debt may be assumed by a spouse as well. Any other debt with a co-signer may transfer to that co-signer. Federal student loans are one type of debt that is simply forgiven upon the death of the person who incurred the loan. This is not the case for privately funded student loans.