What Happens to Debt If You Die in Canada

Posted on April 17, 2024 by Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee

Nobody likes to think about death and its consequences, but it is a critical topic to be aware of when it comes to your debt. It creates several questions: Will your family inherit your outstanding debts? Who will be responsible to pay them off? Can your creditors take legal action against your family? Is there anything you can do to prepare?

This article will look at what happens to debt if you die to help you prepare and plan for dealing with unpaid bills and debts.

What Happens to Debt After Death

As much as you may wish, your debts don’t just go away when you pass away. Your creditors can write them off; however, they might still consider collecting payment for any debts owed.

There is good news, however: Your family will not inherit your debt. Instead of transferring to beneficiaries, your estate will settle your debts using any assets you may have had. However, if there is any joint debt or a family member has co-signed or guaranteed a loan, they would be responsible for the debt.

Like with many legal processes, the type of debt makes a difference in how it is handled after death.

Unsecured Debt

If you have credit card debt and are the only one who signed the card agreement, no other person would be legally responsible for your payment obligations as they never became part of the credit card contract. The creditor would file a claim against your estate to collect any money owed. 

If you are wondering what happens if another individual receives a duplicate card to use or you allow them to use your credit card, they would not be liable for any debt as the account is strictly yours.

However, if you entered a joint agreement with another individual, the joint cardholder will be responsible for repaying the debt.

It is critical to note that some credit card contracts make the primary and supplementary borrower equally responsible for all credit cards under the account, or the supplementary borrower is only responsible for debt incurred on the duplicate card.

We recommend you review the credit card agreement to verify who will be liable for the outstanding balance.

Other unsecured debts, such as installment loans or lines of credit, follow the same rules as credit cards, except federal student loans. The government will discharge these in the case of your death.

What Happens to Debt If You Die

Secured Debt

Similarly, if you own a home with mortgage debt solely in your name, your lender cannot ask anyone else to resume payments after your death. However, if someone else has co-signed the mortgage agreement, like your spouse, the payment responsibility will automatically transfer to them. As many couples purchase a home together, it is a common occurrence.

But unlike unsecured debt, mortgage debt remains attached to the asset, meaning whoever inherits the home may also inherit the mortgage debt. Should your family want to keep the property after your passing, they must assume the mortgage payments. 

If they choose to sell the property instead, a portion of the proceeds must be used to pay off the mortgage’s remaining balance. The mortgage lender also has the option to repossess the home if your family does not want to keep the house.

The same goes for other secured debts, such as car loans, where the outstanding balance remains attached to the asset, and a transfer of ownership means the new owner will be liable for the remaining debt on the loan.

Can You Inherit Debt?

Your beneficiaries will not inherit your debts after you die in Canada. Instead, they will be paid out using your assets by your estate, and any remaining assets will be transferred to your beneficiaries as part of their inheritance.

However, some debt will transfer to our beneficiaries, such as:

  • co-signed and guaranteed loans
  • jointly signed credit card debts, mortgages or car loans
  • secured debts where the ownership of an underlying asset, such as a home or vehicle, transfers to a beneficiary.

Tax Debt After Death

Any taxes owed to the Canada Revenue Agency (CRA) will be paid through your estate by your executor. CRA debt has the highest priority among outstanding debts, followed by provincial or territorial taxes owed.

Final Thoughts

Fortunately, debts don’t automatically transfer to your beneficiaries in Canada, so if you have been worried about inheriting debt in Canada or if debt gets passed down, it depends on the agreements in place. The debt will not be passed on to your beneficiaries if you are the sole signor of a credit card agreement or loan contract. Joint debt, where you and another individual have signed a contract together or another individual has co-signed or guaranteed a loan, will be held liable for the remaining balance of the debt or loan.

If the debt is secured by an asset, such as a house or a vehicle, the outstanding balance will remain attached to the asset, and whoever takes over the asset will have to assume the remainder of the debt.

The experienced Licensed Insolvency Trustees of Chande Debt Solutions are focused on personal debt relief and insolvency services. They can help you prepare by examining all debt relief options and devise a strategy to resolve your debts. We know that filing a consumer proposal or bankruptcy is a serious matter, and we want to ensure that you are well-informed and don’t rush into any solutions. All of our consultations are free, without time limits.

Call us today at 416-366-3328 or fill out our convenient online form to learn how we can help you recover financially.

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Mihir Chande
Mihir (Mike) Chande, CPA, CA, CIRP, Licensed Insolvency Trustee Mike, a Chartered Accountant, began his insolvency career in the Corporate Insolvency and Restructuring group at one of Canada’s largest insolvency firms. After gaining extensive experience, he founded Chande Debt Solutions to offer personalized and empathetic debt relief services to clients seeking an alternative to traditional solutions.

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