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What happens to debt when someone dies in Canada?

7 July 2022

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If you’ve just lost a loved one that had debt, you’re likely wondering what happens to that debt, now that they’re gone.

We understand how difficult this time is, and, however painful it may be, their financial situation will need to be addressed at some point. We want to make sure you have all the information you need to feel comfortable and confident in your decisions.

Key Points

Do I have to pay off debt after a family member dies?

When a Canadian national dies with debt, their beneficiaries will NOT inherit their debts or have to pay them.

The debts of your parents, partner or children cannot become yours should they pass away. Likewise, if you die, then any debts that you have cannot be passed over to them. This also includes any taxes that may be owed.

How are debts paid off in Canada after a person’s death?

The short answer is that the debt is paid off by the deceased’s estate.

Before any inheritance is paid out, the deceased’s assets will be used to pay off any outstanding debts. This can include their mortgage and any other personal debt that they may have. Assets include their home, any savings they may have, and anything of material value that could be sold, such as a car.

There are two notable exceptions here: the first is joint debt. In this case, the surviving person will become liable for the full amount of debt they agreed to co-sign. The second is federal student loans. These are usually forgiven upon death, but private student loans are treated like any other debt and would therefore have to be paid by the deceased’s estate.

Are any debts transferable on death in Canada?

Although the vast majority of debts are waived upon the event of a person’s death, there are a few notable exceptional circumstances.

If creditors can prove that the deceased owed them money, they can make a claim on their estate to try and recoup what they are owed. This would mean that they would be paid before any inheritance proceeds are paid out to the beneficiaries. This is also true of mortgages.

The other major instance is co-debt. If you are the co-signer of a joint account and the other co-signer passes away, or if you co-sign a loan for someone else, you will become liable for the full amount of the loan or credit that they owed upon their passing.

What happens to credit card debt after death in Canada?

Credit card debt is handled in the same way after a death. Either it is paid off by the estate, or if there is a co-signer on the credit card, they will take on the full credit card debt.

What happens to debt if someone dies with no estate?

In the unusual situation where someone dies with debts but has no estate to settle them then, generally, the debts remain unpaid. The only exception to this would be if the deceased had co-signed debt with someone else. In this instance, they would then become liable to pay the remaining amount that they co-signed for.

Is the executor of a will responsible for debts?

No, the executor of a will or estate is never liable for a person’s debts. It is the responsibility of the deceased’s estate to pay off any remaining debts.

Five tips to avoid inheriting debt

There are a number of ways you can avoid inheriting debt should a loved one pass away. These include:

  • Don’t agree to take on joint debt or act as a co-signer
  • Don’t take out supplementary credit cards
  • Take out a life insurance policy that would cover the debt. Some life insurance policies are even made specifically for this reason
  • Create a Will
  • Speak to the creditors and set up a debt repayment plan

Bereavement and Debt

If you have lost a loved one and are now having to deal with their debt, remember you don’t have to face this alone – we are here to help.

With years of experience in handling cases like these, we know just how difficult it can be. Use our free Debt Repayment Calculator to see exactly what is owed. Then, get in touch with us for tailored debt relief help. We will do everything we can to make sure you have the financial freedom you deserve.