What Happens To Your Debt When You Die?

In Canada, it’s not uncommon to find yourself in debt at some point in your life. Whether it’s student loans, credit card debt, or a mortgage. The weight of these financial obligations can be difficult and overwhelming to manage. But what happens when you pass away? Does all of your debt simply go away with you? This is an important question for Canadians to consider as they plan for their future. In this article, we’ll explore how debt works in Canada after someone has died and what steps family members should take in order to ensure that their loved one’s estate is properly managed. We’ll also provide information on the various options available for those seeking relief from their debts before death. By understanding these processes, Canadians can make informed decisions and plan accordingly.

The Basics

When someone passes away in Canada, the individual’s estate is responsible for paying off any outstanding debts before it can be distributed to heirs as part of their inheritance. This means that if a person dies with debt, their family members may have to use some of the assets from the estate to pay off creditors first. However, not all types of debt are passed on after death – only debts that are considered “secured” by an asset fall into this category. For example, a mortgage or loan taken out against a house would be considered secured debt and must be paid off before the property can be transferred to an heir. Unsecured debt such as credit card debt or personal loans, on the other hand, are generally not passed on after death.

It is important to note that even if a debt is considered unsecured and does not pass to heirs, it can still negatively affect an estate. For instance, if there isn’t enough money in the estate to pay off all outstanding debts, creditors may claim certain assets from the deceased’s estate in order to recoup their losses. This could leave family members without any inheritance or significantly reduce its value.

In Canada, there are several paths for debt after death.

Types of Debt

The type of debt you have determines what will happen to it when you die. All debts must be paid in full before any estate can be distributed to the beneficiary. In general, there are two types of debt in Canada – unsecured and secured debt. Unsecured debt is non-collateralized and includes credit cards, lines of credit, personal loans and student loan payments. Secured debt requires collateral and includes mortgages, car loans and liens against property or assets that you own.

Unsecured Debt

If you have unsecured debt such as a credit card bill or student loan payment, it is likely that the debt will die with you. Unsecured debts cannot be passed on to your spouse, family or estate after you die. The good news is that creditors generally do not pursue unsecured debts after death due to the fact that collection would be highly unlikely.

Secured Debt

On the other hand, if you have secured debt such as a mortgage or car loan, it could be passed on to your spouse, family members or estate depending on how long it has been since you’ve had them and who owns the debt under Canadian law. Generally speaking, most lenders will require payment of any outstanding balance on secured debt within a certain amount of time after death or else they can claim ownership of any assets used as collateral for the debt.

What To Do

If you’re concerned about how your debts will affect your loved ones after you pass away, there are steps you can take now to ensure they don’t have too heavy of a burden later on. The first step is to speak with a financial advisor and create a comprehensive plan for handling your debts. If possible, you should strive to pay off as much debt as you can before death so that less of your estate is consumed by creditors later on. Additionally, it’s important to ensure that your family members or other designated beneficiaries know where to find all of your financial information such as bank accounts, investments, and loan documents. This will make it much easier for them to manage your affairs after you’re gone.


Congratulations. You have owned a family cottage up north for decades. The kids and grands love it. What happens when you die? Normally, the cottage is a secondary residence, therefore subject to capital gains tax on your death. It’s too late to just add the kids to the title. That is partial disposition which is a taxable event. You could transfer the property to the kids now, but again there is tax due on transfer. That’s ok is you are prepared to pay the tax. Or, you could “elect” to make the cottage your principle residence. That makes your home your secondary residence. OR, take out an insurance policy. That will put money into the kids hands when you die enabling them to pay the cap gains tax and keep the cottage. Let’s talk.


There are several paths for debt after death in Canada depending on the type of debt you have and how long it’s been since you’ve had them. While most unsecured debts will die with you, secured debts such as mortgages and car loans could be passed on to your spouse, family members or estate depending on who owns them under Canadian law. It is always best to consult a financial advisor if you are dealing with large amounts of debt to ensure that all obligations are taken care of before any estates can be distributed.  By doing so, you can ensure that your loved ones don’t get any unexpected surprises down the line.

A financial advisor can also help you create a will and estate plan to make sure all of your debts are taken care of.  It is important to make sure your loved ones’ future is secure and that no debt remains behind after you have passed away.  By ensuring that all outstanding debts are taken care of, you can provide peace of mind to your family when it comes time for them to inherit and manage your estate.

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