If you die with bills yet to be paid, those bills will still be there afterward. Someone will have to pay them -- and in many cases, that someone will be you, with assets taken from your estate. Key considerations in determining what happens to your bills when you die are who's responsible for the debt, how much your estate will be worth, and, if you're married, the state in which you live.
When you die, your financial obligations don't die with you. Instead, they pass to your estate, the legal entity created upon your death to settle your affairs. If you die owing money, the estate becomes responsible for that debt. Your personal assets also pass to your estate -- and your debts will be paid from those assets. After your debts are settled, the remainder of your estate can go to your heirs. So, if you die with credit card debt of $50,000 and a bank account with a $60,000 balance, your heirs may see only $10,000 of your money. By law, certain assets, such as life insurance payments and money in 401(k) accounts, can't be tapped to pay an estate's debts; those assets pass directly to the people you've named as the beneficiaries of those funds.
The Names on the Debt
A central question to ask is: Whose name is on the bills? Debt that is in your name, and your name only, will pass to your estate. Debt that is shared -- such as a mortgage with two people's names on it, or a credit card account in both spouses' names -- remains shared, except that it's now your estate that's responsible for your portion. If your estate's assets can pay off the debt, then everything's settled. But if your estate can't pay the debt -- or the executor of the estate refuses to pay it -- then the remaining debt may become the responsibility of the surviving account holder.
Your estate may not have sufficient assets to pay off the bills for which it's responsible -- that is, the bills that are solely in your name. In that case, your estate is insolvent. Secured creditors, those who have collateral for your debt, can repossess the collateral. So if you die with an unpaid car or house loan, the lender can take back the car or house. But unsecured creditors, such as credit card companies, are out of luck when the estate is insolvent. They get nothing and will have to write off the debt. Though creditors might try to harass your family into paying off the debt, in most cases they are under no obligation to do so if their name was not on the debt.
Community Property States
There's one rather large exception to the general rule about survivors not being liable for debt that's not in their names. Nine states have "community property" laws, which say, essentially, that all assets and debts belonging to one spouse in a marriage automatically belong to the other, regardless of whose name the asset or debt is actually recorded under. Those states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. However, each of these states has its own specific rules about debts and estates. If you are married and live in one of these states, an experienced estate-planning attorney can help you understand what would happen to your debt when you die.