When a parent passes away, it’s undoubtedly an emotional time. But along with grief can come uncertainty – especially if they had outstanding debts. A question we hear often at Spergel is: “If your parents die with debt, who pays it?” The answer may surprise you – and reassure you.
What happens to debt after death in Canada?
In Canada, debts don’t automatically transfer to surviving children or family members. Instead, they are paid from the estate. That includes:
- Any debts they owed, such as credit cards, loans, or a mortgage
- Cash and bank accounts
- Property and vehicles
- Investments and personal belongings
Seniors (65+), while carrying the lowest average non-mortgage debt ($14,575), saw an 8.12% increase in delinquency, driven by rising cost-of-living and healthcare expenses.
The executor named in your parent’s will is responsible for settling the estate, which includes:
- Identifying and valuing assets
- Notifying and paying creditors
- Distributing the remaining assets to beneficiaries
If your parents die with debt, who pays it?
The executor uses funds from the estate to repay:
- Credit card balances
- Personal loans
- Car loans
- Mortgages
- Lines of credit
- (In some provinces) student loans
50% of Canadians do not have a will, and an additional 13% have one that is out of date. This means only 37% of Canadians have an up-to-date last will and testament.
– Angus Reid InstituteWhat if the estate can’t pay?
If the estate’s debts outweigh its assets, it’s considered insolvent. In this case:
- The estate goes through a legal process to determine which debts get paid.
- Creditors may receive only partial repayment – or none at all.
- You are not personally responsible for paying any remaining debt unless you’re legally connected to it.
You are NOT liable for your parents’ debts unless:
- You co-signed the debt or loan
- You were a joint account holder (not just an authorized user)
- You guaranteed the loan
“Unless you co-signed or guaranteed a loan, you’re not personally responsible for a parent’s debt. It’s a common misconception, but the estate – not the individual – is what pays off outstanding debts.”
— Chris Galea, Licensed Insolvency Trustee at SpergelWhat about mortgages and car loans?
These are secured debts, meaning the lender can repossess the asset if payments stop.
If you inherit a property with a mortgage, you can choose to:
- Take over the mortgage (if the lender agrees)
- Sell the property and use proceeds to settle the debt
- Allow the lender to foreclose
Protect yourself: what you can do now
While you can’t control the past, you can take steps today to reduce stress and uncertainty in the future. Whether your parents are managing debt or not, being proactive about estate planning can help protect your family – and your peace of mind.
- Start the conversation: talk with your parents about estate planning, including wills, insurance, and debt. It’s not easy – but it’s important.
- Encourage a valid will: this will speed up probate and make settling debts much easier for your family.
- Speak with a professional: each situation is unique. If you’re unsure about your role or exposure, a Licensed Insolvency Trustee (LIT) can walk you through your debt relief options.
You don’t have to face this alone
Losing a parent is hard enough. Worrying about their unpaid bills shouldn’t be part of your grief. At Spergel, our compassionate team of Licensed Insolvency Trustees is here to give you answers – and peace of mind. Book your free, confidential consultation today. We’ll walk you through your rights, responsibilities, and how to protect your financial future. No pressure. Just solutions.