What happens to your debt when you die in Canada?

Losing a loved one is never easy. On top of grieving, families may also have to navigate outstanding debts and other financial affairs. If you’re wondering what happens to debt when you die in Canada, it’s important to understand that these obligations don’t vanish when someone passes.

Instead, these debts become part of the deceased person’s estate and may need to be settled before any remaining assets are passed on. Here’s what you need to know so you can protect yourself and your loved ones from financial stress and uncertainty.

Keep in mind that your personal circumstances should influence the decisions you make. By seeking our personal finance and legal advice, you’ll be able to make informed choices about what will likely happen to your debt after you pass away.

Does debt disappear when someone passes away?

When a person dies with debt – whether it’s credit card debt, federal student loans, or personal loans – creditors generally seek repayment from the estate.

This includes secured debts like a car loan and unsecured debts like credit card balances or unsecured loans. The executor or personal representative for the deceased person’s estate is responsible for paying any outstanding debts before distributing an inheritance.

If there isn’t enough money in the estate to cover these outstanding debts, partial payment or even no payment may occur – this creates what’s called an insolvent estate. If that happens, family members are usually not personally responsible for paying off this debt unless they co-signed loans or share joint debt.

Can you inherit debt in Canada?

You will not inherit a deceased person's debt unless you have co-signed for the debt or have a joint account with them. For example, a surviving spouse on a joint mortgage may be legally obligated to continue mortgage repayments. If a credit card was shared, the remaining debt could be transferred to another living account holder.

But, if you simply share a last name but have no joint agreements, you likely won’t be forced to pay debts that weren’t yours in the first place.

Do I need a will if I have debt?

A will outlines your wishes for what you’d like to happen to your assets after you pass – including how any outstanding debts will be paid for after you’re gone.

Without a valid will, your estate may fall under provincial rules, making it harder for loved ones to collect payment from bank accounts or distribute assets fairly. This can add unnecessary financial burden during a difficult time which is why creating a will and estate planning is so important.

What happens if I have more debt than assets?

If an estate has more debts than assets, then it's usually considered insolvent. In a situation like this, the executor may consult a licensed insolvency trustee or look into a consumer proposal if creditors accept a structured payment plan.

If there aren't enough funds to cover all unpaid bills, the executor will generally follow a legal process to determine how each creditor is paid. Any unpaid debt after that is written off. Surviving family members who have not co-signed or held joint debt usually don't owe money beyond that point.

How do creditors know when someone passes away?

An executor, lawyer, or personal representative usually informs credit card companies, banks, and the Canada Revenue Agency when someone passes away. Creditors will then freeze the relevant accounts and begin their debt collection process through the estate. This ensures any money owed is handled in a clear, lawful way.

What happens to mortgage debt?

A mortgage is a type of secured debt. If you share a mortgage, your co-borrower may need to take over mortgage repayments or refinance the loan.

A life insurance policy can help cover debts like mortgage repayments if the unexpected happens. Otherwise, the home may be sold to pay outstanding debts. Speaking openly about these possibilities with surviving family members can help everyone feel more prepared.

Protecting your assets when you pass away

No one wants to leave more debt than necessary behind. Planning ahead can help cover what you owe and ease any financial burdens that may be left on your loved ones. Options like final expenses insurance, life insurance or credit card insurance can help pay off debts so your family doesn't have to.

You may also want to set aside money for funeral costs, allowing your loved ones to focus on grieving and celebrating your life.

Protect your loved ones with final expenses insurance

Grief is hard enough without the added stress of unpaid debts. If you want peace of mind that your loved ones aren't left struggling with any remaining debt or funeral expenses, consider FiftyUp Final Expenses Insurance for peace of mind.

Get a free quote

Final expenses insurance can help your family cover debts like unpaid bills or other debts when a person dies. It’s specifically designed for Canadians who want extra reassurance that their loved ones won’t face unmanageable costs. Get a free quote to see how you can protect your estate and ensure your loved ones are covered.