The short answer
An insolvent estate is one whose debts are larger than its assets. When that happens, the estate pays what it can in an order of priority set by state law, and in the CFPB's words, if there isn't enough money the debt "generally" goes unpaid. Children and other relatives don't inherit the debt and don't have to pay it out of their own pockets, with a few exceptions.
Two things don't simply go away, though:
- Debts secured by the house, meaning the mortgage and especially the property tax, stay attached to the property. Whoever wants to keep the house has to keep them paid.
- The executor's duty to pay creditors in the right order. Paying the wrong one first can make the executor personally liable.
Are relatives responsible?
Generally no. According to the CFPB and FTC, you're personally responsible for a dead relative's debt only if:
- You co-signed the loan or were a joint account holder. An authorized user on a credit card is not liable.
- You're a surviving spouse in a community property state: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin (and Alaska, if the couple opted in), or in a state with a law making spouses pay certain debts such as medical "necessaries."
- You're the executor and didn't follow your state's probate rules.
Debt collectors can contact the executor or administrator about the debt. They can contact other relatives only to find out who that is, and they can't discuss the debt with them, imply you have to pay from your own money, or harass you. Collectors who call after reading an obituary are a known scam pattern.
One different issue: a few states, including Pennsylvania, have "filial responsibility" laws that can make adult children pay for an indigent living parent's care. A Pennsylvania court applied it in 2012 to a son whose mother owed a nursing home about $93,000. That's a duty to support a living parent, not liability for an estate's debts, but it surprises families.
The order creditors get paid
Each state ranks claims in classes. Each class is paid in full before the next gets anything, and if the money runs out partway through a class, everyone in it shares proportionally.
| Rank | California | Florida | Texas | New York |
|---|---|---|---|---|
| 1 | Administration expenses | Administration costs and fees | Funeral (up to $15,000) and last illness (up to $15,000) | Funeral expenses (after administration) |
| 2 | Secured debts, from the secured property | Funeral, up to $6,000 | Administration expenses | Debts preferred by federal and NY law |
| 3 | Funeral expenses | Federal and certain state claims, taxes | Secured claims, including tax liens | Taxes assessed before death |
| 4 | Last illness | Medical bills of the last 60 days | Child support | Judgments |
| 5 | Family allowance | Family allowance | State taxes | All other debts |
| 6 | Wage claims | Child support arrears | Cost of confinement | |
| 7 | General debts | Business debts (from business assets) | Medicaid repayment | |
| 8 | All other claims | All other claims |
Credit cards, medical bills beyond the last illness, personal loans and most other unsecured debts sit at the bottom. In a truly insolvent estate they often get little or nothing.
The executor's biggest risk: federal claims
Federal law (31 U.S.C. § 3713) puts the U.S. government's claims, unpaid federal income tax being the common one, ahead of other debts when an estate can't pay everything. And an executor who pays other debts first is personally liable for the unpaid federal claim, up to what they paid out. If there's any chance the estate owes the IRS, find out before you pay credit cards or distribute anything. See our guide to federal tax liens.
Creditors also have deadlines, which protect the estate:
- Florida: claims are due 3 months after the notice to creditors is first published (or 30 days after a known creditor is served), with an absolute bar 2 years after death.
- California: 4 months after letters are issued (or 60 days after notice is mailed), and claims are generally barred one year after death.
- Texas: an unsecured creditor who receives notice has 120 days to present a claim.
The full executor checklist is in executor duties and probate steps.
What happens to the house
Property tax keeps its place. The tax is a lien on the property itself, and it survives the death. It's paid from the house (Texas ranks tax liens with secured claims), and if nobody pays, the county can eventually sell a tax lien or the property. Florida's 2-year bar on creditor claims explicitly doesn't affect recorded liens.
Homestead protection, but not from property tax. Some states shield the family home from the estate's other creditors:
- Florida: a homestead is exempt from forced sale by most creditors, and that protection passes to the surviving spouse or heirs. But the constitution makes an exception for "taxes and assessments thereon." The property tax still has to be paid.
- Texas: if a spouse or minor child survives, the homestead isn't liable for the estate's debts, except for the mortgage, property taxes on the homestead, home improvement liens, home equity and reverse mortgages, and a few others.
The mortgage can stay in place. Federal law bars lenders from calling a home loan due just because the borrower died and the home passed to a relative, spouse or child (12 U.S.C. § 1701j-3(d)). The heir has to keep making payments. Once the servicer confirms you as a "successor in interest," you're treated like a borrower for escrow and loan information. If the house is worth less than the mortgage, heirs can usually walk away without owing the difference.
Medicaid estate recovery
States are required to try to recover the cost of nursing home and long-term care services from the estates of Medicaid recipients 55 and older. The house is often the main asset. There are protections:
- No recovery while a spouse is alive, or while there's a child under 21 or a blind or disabled child.
- Recovery from the home is deferred while a sibling with an equity interest, or a child who lived there and provided care, still lives in it.
- States must waive recovery for undue hardship.
Some states go after only probate assets; others also reach non-probate assets like jointly owned property or a living trust. See types of trusts for how Medicaid planning trusts work.
Money creditors usually can't touch
Assets that pass directly to a named beneficiary generally aren't part of the probate estate. In Florida, for example, life insurance paid to a named beneficiary is exempt from the insured's creditors. Payable-on-death accounts, retirement accounts with beneficiaries and transfer on death deeds work similarly in most states, though rules vary and Medicaid recovery is an exception in some. If the estate is small, see small estate affidavits by state, and for the house specifically, property taxes on an inherited house.
Sources
CFPB pages on debts after death, collector contact and authorized users; 12 C.F.R. §§ 1006.2 and 1006.6 (Regulation F) and §§ 1024.30, 1024.31 and 1024.38 (Regulation X); FTC "Debts and Deceased Relatives"; Cal. Prob. Code §§ 9100 and 11420 and Code Civ. Proc. § 366.2; Fla. Stat. §§ 222.13, 733.608, 733.702, 733.707 and 733.710 and Fla. Const. art. X, § 4; Tex. Est. Code §§ 102.004, 308.054 and 355.102; N.Y. SCPA § 1811; 31 U.S.C. § 3713; 12 U.S.C. § 1701j-3; 42 U.S.C. § 1396p and CMS estate recovery guidance; and Health Care & Retirement Corp. of America v. Pittas (Pa. Super. Ct. 2012). This is general information, not legal advice.