What happens when you die in debt? It’s a question that more and more Americans are probably asking themselves.

According to Experian, U.S. consumer debt reached a record high of $14.1 trillion in 2019. This total includes $9.6 trillion in mortgage loans, $1.4 trillion in student loans, $829 billion in credit card debt, and $305 billion in personal loans, among other types of debt. It’s worth noting that this was before the pandemic caused many Americans to run through their savings. Now, the situation might be even worse.

Most people hope to pay off their debts before they reach retirement, but this doesn’t always happen. According to CNBC, data from the Federal Reserve Bank of New York shows that the total debt burden for Americans aged 70 and older increased 543% between 1999 and 2019, reaching $1.1 trillion.

Americans have a lot of debt. Some people die in debt. Here’s what happens next.

Debt and Probate

After a person dies, the estate often has to go through a legal process known as probate. During probate, the executor of the estate determines what debts and assets exist. The debts are paid, and then the remaining assets are distributed according to the will, if there is one.

If there’s not enough cash to cover debts, assets may need to be sold in order to pay debts. In some cases, there won’t be enough assets to cover both the debts and the asset distribution as described in the will. In this situation, the assets received by the beneficiaries will have to be reduced, a process known as abatement. States may have specific rules regarding abatement. In Oregon, ORS 130.237 governs how abatement occurs, including the order of assets subject to abatement.

Insolvent Estates

After the various debts are paid, there may be few assets remaining. In some cases, there may be no assets left, but some debt may remain. When this happens, the estate is deemed insolvent.

As with abatement, state law may determine precisely how an insolvent estate should be handled. In Oregon, ORS 115.125 outlines which expenses and claims should be paid first, starting with support of the spouse and children up to the limitations, followed by the estate’s administration expenses, the funeral expenses, the debts and taxes with preference under federal law, and so on.

Do People with Debt Still Need an Estate Plan?

If you have a lot of debt, you might think that estate planning is not important. However, estate planning can serve many important purposes, even if you are in debt.

For one thing, careful estate planning can provide strategies to minimize the burden of taxes and other expenses. Other strategies, such as the use of life insurance, can provide another way to pay for debts and taxes or to leave something to beneficiaries.

There are also issues to consider beyond asset distribution, including advance directives to ensure your wishes are carried out if you ever become incapacitated.

Contact Skinner Law for all of your estate planning needs.


9600 SW Barnes Road, Suite 125
Portland, OR 97225
Phone: (503) 719-6603