If someone dies with a negative net worth, what happens to the bills and debts that they leave behind? If I am the next of kin, or if I am the estate administrator, am I responsible for the debts?

Assume for the sake of this hypothetical question that the debts and bills exceed any life insurance, death benefits, etc. etc.

  • In case this differs by country, I'm primarily interested in Canadian and U.K. laws, though I think other people would be interested in laws for other countries. – ChrisInEdmonton Jul 29 '11 at 13:54

It chops and changes all over the world, but generally speaking (in western countries at least) the debt does not pass on.

This article provides a calm rundown of the situation in the USA. Do note the section about "generally no, but maybe" if a large asset transfer occurred just before death. Also, it's worth noting that most states have tweaks to the laws - for example, the state of Florida makes sure that medical bills get full freight while credit card companies take a back seat.

In the UK, they take the rather humane approach that funerary debts be paid first, then the creditors can have at it. Insolvent deceased estates in the UK are administered according to normal bankruptcy laws. To see a full list of the many descriptive resources available from HMRC, see this search, but also see this article for a more general overview.

In Canada it will be defined in law by each province, but run along lines similar to the US and UK. As an example, see this doc from the Saskatchewan gov discussing the order in which debts will be paid, especially page 5. And no, estate administrators are not responsible for the debts.

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    I wish I could +2 this, a very comprehensive answer covering three separate countries. Thanks! – ChrisInEdmonton Jul 29 '11 at 14:45
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    One wrinkle is that in some US jurisdictions, the spouse of a deceased person can be be stuck with a debt. – duffbeer703 Jul 29 '11 at 14:48
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    @duffbeer. That can be true under some circumstances, such as shared credit cards or legal guarantees between spouses. I would argue such situations to be self-explanatory (ie. you know you're on the hook because you put yourself there), but more importantly I would argue that these are typically debts where responsibility persists as opposed to transfers (there's a difference). – gef05 Jul 29 '11 at 15:07
  • @gef05, I think duffbeer703 is referring to community property states where one may be liable for a spouse's debt (at least in some circumstances). I suppose that technically it's "persisting" rather than "transferring", but I can imagine it being a surprise for some. – Jeremy Stein Aug 14 '12 at 14:19
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    If two people jointly contract a debt, like a husband and wife or business partners, then I'd expect that pretty much anywhere, the death of one will not normally relieve the other of the responsibility to repay the debt. Barring specific contractual terms to that effect, etc. In the U.S., at least, some couples buy "mortgage insurance", which pays off their home mortgage if one person dies. – Jay May 20 '14 at 14:10

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