Losing a parent is one of life’s most challenging moments. On top of grief, you might find yourself facing unexpected questions, like what happens to their finances or whether you’re responsible for their debt.
It’s normal to feel overwhelmed, but here’s some reassuring news: in most cases, you don’t inherit debt in Canada.
Do You Inherit Your Parents' Debt in Canada?
The short answer is no, you don’t personally inherit your parents’ debt in Canada.
When someone dies, their debts don’t just disappear, but they also don’t pass to their children. Instead, debts are settled through their estate. That means their assets, like property, savings, or investments, are used to pay off any outstanding debts before anything is passed on to beneficiaries.
That said, sorting through these details can feel confusing, especially when you're already navigating a loss. For example, discovering your parents had credit card debt after they passed can be overwhelming, but that debt usually isn’t yours to carry.
What Happens to Debt When Someone Passes Away?
After someone dies, their executor is responsible for managing the estate. This includes paying off any unpaid debts with the estate’s assets before distributing the rest.
Types of debt that may remain:
- Credit card debt
- Mortgage debt
- Car loans
- Home equity loans
- Medical bills
- Personal loans
Before any inheritance is distributed, the estate must settle its outstanding debts, meaning that any outstanding bills must be paid using the estate's assets. If the estate doesn’t have enough to cover everything, it’s considered an insolvent estate. In that case, whatever money is available goes to creditors in a specific legal order, starting with secured debts.
If there still isn’t enough to go around, the rest of the debts generally go unpaid. You will not be required to personally cover the shortfall.
Secured debts, such as mortgages or car loans, are tied to specific assets. If those loans can’t be repaid, the lender may repossess the home or car. If you’re the primary beneficiary, this doesn’t mean you’re obligated to pay for something you didn’t agree to, it just means the asset tied to the loan may not become part of your inheritance.
The law guarantees that the remaining estate is distributed as intended and prevents unexpected bills for beneficiaries.
Even if your family has only a few assets or debts seem larger than what's available, reaching out to a legal or financial advisor is still a helpful step. They can guide you through the paperwork, make sure you understand what’s included in the estate, and help prevent anything from being overlooked. Looking closely at your parents’ loan agreements, particularly secured debts, can provide valuable clarity on who owes what.
Learn more about what happens to your debt when you die
Are Children Responsible for Their Parents’ Debt?
Most of the time, no, children aren’t legally responsible for their parents’ debt. But there are exceptions:
You could be liable if:
- You co-signed on a loan or credit card
- You were a joint account holder
- You live in a province where laws differ in unique situations, though this is rare in Canada
Example: If a child shares a home equity loan with a parent, they may still be on the hook for repayment after the parent dies. Similarly, if you co-signed a car loan, you are legally obligated to continue making payments.
If you’re contacted by debt collectors about your parents’ debt, you have the right to ask for proof of your responsibility. It’s often enough to say, “I’m not a co-signer, so I’m not responsible.”
There are also practical steps you can take if you feel overwhelmed:
- Keep a record of communications with debt collectors
- Request a full breakdown of debts owed and confirm that they are part of the estate
- Ask the executor for copies of relevant documents, including the will and debt account statements
Check out what to do after the death of a parent in Canada
How Estate Planning Can Prevent Debt Inheritance
Planning ahead doesn’t just protect assets, it helps protect loved ones from surprises.
Here are a few ways estate planning helps:
- Make a will: This ensures your wishes are followed and your executor knows how to handle your debts and distribute what’s left
- Name beneficiaries on insurance and registered accounts: These typically bypass probate and go directly to your loved ones
- Purchase a life insurance policy: This can help cover outstanding debts and estate fees
- Have the conversation: Talk with family members about your financial situation to avoid confusion or shock later
Example: Priya’s father had a mortgage and a car loan. Because he had a will and life insurance, his debts were paid off without touching the family’s savings. That’s the benefit of preparation.
It’s also wise to consider how assets are titled. For example, jointly held property may not form part of the estate, so it passes directly to the joint owner and isn’t available to repay creditors.
Additional estate planning tools that may help include:
- Creating a power of attorney
- Establishing a trust
- Reviewing and updating documents regularly
These measures make sure that your estate is in order and that loved ones aren’t surprised by any unpaid financial obligations.
Explore how to manage an inheritance
Learn more about inheriting property from your parents
Prepare and Protect Your Family
It’s never easy to think about debt or losing a parent. But understanding how debt works after someone passes away can bring clarity and peace of mind.
To recap:
- Debts are paid from the estate, not inherited directly
- Children are not responsible unless they co-signed or share joint debt
- Planning ahead can prevent unnecessary stress and financial burden
- Use tools like a life insurance policy, wills, and named beneficiaries to protect loved ones from debt
- Have the conversation early, so there are no surprises later
Creating an estate plan isn’t just about protecting your finances. It’s about giving your family peace of mind. When you leave clear instructions, outline your assets and debts, and make thoughtful decisions ahead of time, you help your loved ones navigate one of life’s most difficult chapters.
It may also help to document your debts and communicate with your executor while you're alive. Clear documentation means faster debt repayment and fewer delays in settling the estate. Encourage loved ones to use checklists and digital tools to track and organize information.
Create an estate plan to prepare and protect your family. Get started for free.
FAQ
What debts are forgiven at death in Canada?
Some debts, like national student loans, may be forgiven. But most debts, including mortgage debt and credit card balances, must be repaid through the estate. If the estate is insolvent, remaining unpaid debts generally go unpaid, so they aren’t passed on to beneficiaries.
That said, rules around what debts are discharged or remain can vary based on the type of debt and the province you live in. Always consult a financial advisor or estate lawyer to understand your specific circumstances.
Along with federal rules, each province may treat estate and debt settlement differently. For example, Quebec has laws governing the settlement of an estate and may need heirs to actively accept or refuse succession.
If you’re unsure whether a debt is discharged, look at the debt type:
- Unsecured debts, like credit cards, may go unpaid if the estate is insolvent
- Secured debts, like mortgages and car loans, need repayment or return of the asset
Remember, you can always decline an inheritance if it comes with more risk than benefit.
Related Reads:
- What happens to your debt when you die
- What to do after a parent dies
- Inheriting property from your parents in Canada
- What to do with inheritance
- Receiving an inheritance in Canada
- Living Inheritance in Canada
- Dying without a will
