14 Jun 2019
Let’s say Mom is retired and pining for a new car. You know she can afford it. So to give her the push she needs, you – the well-meaning child, in mid-life and financially comfortable, agree to co-sign the loan. When Mom passes away, you learn that the car is worth less than the amount due on the loan. Are you legally responsible to pay off the loan? The answer is yes.
What happens if a parent dies with more debt than assets? There won’t be enough money to cover all debts. Are you responsible to pay off your parent’s debt? The answer is no, unless you agreed to guarantee payment or co-signed the debt. The creditor, however, will have the right to collect from the estate, before any beneficiaries can receive their inheritance.
Creditors can seek repayment from you, and not your parent’s estate, if you have guaranteed or co-signed the debt. For example, if part of the estate’s debt relates to a credit card which you guaranteed or your mother’s card was issued under your account, then you have the legal liability to pay off the debt.
You become personally liable for a parent’s debts only if you take the deliberate act to co-sign a loan, guarantee payment, or issue a credit card to a parent under your account. If a child has not guaranteed or co-signed a debt, there is no legal liability for the child to repay it. This is true, even if a parent dies, and all of the debt cannot be repaid.