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A friend of mine who recently lost his father received a bill of nearly $750,000 for his father's two-week hospital stay. If you die in a hospital or after a long illness, there's a good chance you'll leave behind unpaid medical debt too. If insurance doesn't cover medical debt that remains after your death, is your family responsible for it? Family responsibility to repay medical debt after your death depends on a variety of factors, including state laws and whether your estate can cover the debt. Here's what you (and your heirs) need to know.
Who Is Responsible for Someone's Medical Debt When They Die?
Your medical bills don't go away when you die, but that doesn't mean your survivors have to pay them. Instead, medical debt—like all debt remaining after you die—is paid by your estate.
Estate is just a fancy way to say the total of all the assets you owned at death. When you die, the money in your estate will be used to cover your outstanding debts. If you had a will and named an executor, that person uses the money from your estate to pay your outstanding debts. If you didn't have a will, a judge will select an administrator to carry out the judge's decisions about how to distribute your estate.
Debts must be paid before your heirs receive any money from your estate. If the value of your estate is equal to or more than the amount of your debt, your estate is solvent—that is, it can afford to pay the debt.
If you have more debt than assets, your estate is considered insolvent. In this situation, things get a bit more complicated. When you have more debt than your estate can cover, the court will prioritize payments to creditors according to federal and state laws. Some creditors may get the full amount they are owed; others may get partial payments or nothing at all. Your estate may have to sell some assets, such as your home or car, to pay the debts.
If you die with $100,000 in medical debt but have only $50,000 in assets, is your family responsible for paying the remaining $50,000? In most cases, no. If the estate can't pay your medical debt, the creditors generally write it off. However, there are some exceptions to this rule.
- Cosigned medical bills: When you seek medical treatment, you're generally required to sign paperwork promising to take responsibility for any bills your insurance doesn't pay. If someone else signed these papers for you, they could be held responsible for your medical bills. This varies depending on state laws and the specifics of the documents.
- Filial responsibility laws: More than half of states have laws that hold adult children responsible for financially supporting their parents if the parents can't afford to support themselves. These laws are rarely enforced, because Medicaid typically pays for medical care in these cases. However, Medicaid might pursue your estate to recover benefits (more on this below).
- Medicaid estate recovery: If you are a Medicaid recipient over age 55 when you die, federal law requires your state's Medicaid program to try to recover from your estate all the payments they made for your nursing facility services, home and community-based services, and related hospital and prescription drug services. Medicaid won't hold your survivors responsible for the repayments; any recovery will be made from your estate. If you are survived by a spouse, a child under age 21 or a blind or disabled child of any age, Medicaid can't pursue the repayments at all.
- Community property states: The nine community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. (Alaska gives both spouses the option to make their property community.) In community property states, spouses are generally held responsible for each other's debts, even if they did not incur the debts themselves. However, community property laws vary from one community property state to another, so you should speak to an attorney to determine responsibility for medical bills.
What Happens to Other Forms of Debt When Someone Dies?
When someone dies, there are often other debts related to medical expenses. It's important to understand your responsibilities for these debts.
- Nursing home debt: In the past, nursing homes often required a third-party guarantee of payment before they would admit a resident. If a family member or friend signed as guarantor, they would be responsible for any nursing home bills after the resident's death. Federal law passed in 2016 makes it illegal for nursing homes to require or even request a third-party guarantee. However, it's important for family members to read any admission papers carefully before signing them, as nursing homes may use vague or confusing language to hold family members responsible for payment.
- Mortgage or home equity debt: You may have taken out a second mortgage or a home equity loan to finance your medical care. If your spouse was also on the loan, they will be responsible for paying it off after you die. If you leave the house to an heir, they may inherit the debt along with the house.
- Cosigned personal loans: Suppose you took out a personal loan to pay for your medical care. If someone else, such as your spouse or child, cosigned with you on the loan, they are responsible for paying those bills after you die. Because your cosigner is still around to handle the payments, your estate has no responsibility for the debt.
- Credit card debt: In some cases, you might use credit cards to pay for medical care; there are even credit cards designed specifically for this purpose. Any joint credit card accounts you held with your spouse will remain their responsibility after you're gone. (Authorized users on your credit card account are not responsible for the debt.)
How Do You Notify Creditors of a Death?
Once the extent of your debts has been established, your surviving family members or the executor of your estate will need to notify creditors of your death. Once they've been notified, creditors usually stop trying to collect unpaid bills until the estate has been sorted out.
Your creditors may inform the major credit bureaus of your death; the Social Security Administration also periodically notifies credit bureaus of the deaths of people with Social Security numbers. Your survivors or executor can also contact the credit bureaus directly to report your death. They'll be asked to provide a copy of the death certificate. Anyone other than your surviving spouse will also have to provide evidence they're authorized to act on your behalf—for example, a copy of a legal document with a court seal indicating they are the executor of your estate.
As soon as a credit bureau is aware of your death, your credit report will be flagged to indicate that you're deceased. This helps prevent identity theft. If anyone applies for credit using your information, the credit bureaus will be alerted of the attempt and can stop the transaction.
Can the Death of a Relative With Medical Debt Affect Your Credit?
In most cases, the death of a parent or other relative with medical debt will not affect your credit, because you are not personally responsible for the debt. However, if you cosigned on medical debt, live in a community property state, or live in a state with filial responsibility laws, and the deceased's estate is insolvent, it's possible you could be personally liable for the debt. How will that affect your credit?
Medical debt is treated differently than most other types of debt. It won't show up on your credit report even if you pay late or the provider's internal collections department starts contacting you asking for payment. Problems arise, however, if the medical provider sells the debt to a third-party collection agency. If that happens, there is a 180-day grace period before the medical collection account will appear on your credit report.
Taking action within that 180-day window is critical to keeping your credit score healthy. Use this time to get any billing errors corrected or work with the deceased's health insurance to pay the bill. If you can't get insurance to pay the bill, contact the medical provider to resolve the issue. You may be able to negotiate to lower or cancel the bill or work out a payment plan. Whatever you do, don't ignore medical bills. Collection accounts related to unpaid medical debt will stay on your credit report for seven years from the original delinquency date, which can significantly damage your credit.
Protect Your Estate and Your Heirs From Medical Debt
Sorting out an estate after a family member's death can be complicated; dealing with unpaid medical debt can add to the stress of an already harrowing time. Estate planning can help ensure that your heirs don't have to worry about your medical bills after you're gone.
Estate planning can protect your assets from creditors so they can't be used to pay your debts after you die. For example, a life insurance policy cannot be used to pay an estate's debts. Certain other assets, such as retirement accounts, brokerage accounts and living trusts, can also be protected from creditors with proper estate planning.
Laws regarding estate planning are complex and vary from state to state. An experienced estate planning attorney can help structure your assets in a way that gives you and your family peace of mind.