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Who Pays Personal Loans Upon Death?

After the death of a loved one you may be wondering who is responsible for paying off the deceased's personal loans.

Debt is not inherited and will not be passed on to the next person as long as you are not a co-signer on the loan. However the estate will need to pay for the loan.

Executor Will Take Care of Debt

The executor of the estate will be responsible for settling any debts the deceased left behind. This means that any assets the person left behind must be applied to any remaining debts.

The executor is in charge of selling any assets such as the home or cars the deceased owned and dividing the money between the remaining debts. The executor will need to send a copy of the death certificate to the creditors along with a letter stating that the estate has paid all it can towards the debt.

Outstanding Debts Will Be Forgiven

If there is not enough money in the estate to pay off all of the debts, then the remaining amount will be forgiven. Debts with assets attached to them such as a mortgage or car loan will take the proceeds from the sale of those items.

Any remaining money will be put in the pool to pay off other debts. Savings will need to go towards any debts that remain.

Generally the executor will add the total debt and the total assets and give the same percentage to each debt. After the estate is settled the executor will need to send a letter to the creditor stating that the estate is settled and that any remaining debt needs to be forgiven.


If a personal loan has a co-signer on it, then the co-signer will take on the responsibility of the loan.

It will not transfer into the estate the same away a debt without a co-signer will. When someone cosigns on a loan they agree to pay off the money if something were to happen to the other person.

If you are a co-signer you can try to have the estate cover a portion of the debt, but generally this will take last place on the list of debts. Additionally the bank will not forgive outstanding balances.

Life Insurance

Any life insurance benefits that are paid out will not be included in the estate. Life insurance will go to the beneficiary named on the policy and does not need to be applied to outstanding debts. You can use the money to pay off the debts if you choose to, but you are not legally obligated to. For example you may choose to use life insurance money to pay the mortgage so the remaining family can continue to live in the home.