In most cases, you aren't personally liable for debt that someone leaves behind when he or she passes away, but that doesn't mean you don't ultimately feel the burden of that debt. Typically, the law expects debt to be settled out of any assets associated with a person's estate, which means heirs stand to inherit less if debt is present.
Here is a very basic illustration to explain how the process is supposed to work. Imagine that a person has a home with a mortgage and one credit card account. The home is worth $300,000 and the mortgage balance is $150,000. The credit card account balance is $5,000. For the sake of this illustration, imagine that the person has no other assets or liabilities.
Upon the person's death, the estate has a home worth $300,000 and liabilities totaling $155,000. The administrator might choose to sell the home, settling the mortgage and the estate would receive the difference in proceeds. In this case, we're assuming $150,000. The credit card company would then be paid, as would any estate-related legal and court fees. The amount left would then be divided among the heirs as detailed in any will or other estate plan or according to estate law in the state.
This example is extremely straightforward, and it's highly unlikely real-life estate scenarios would play out so cleanly. There are also considerations about who owes what if the person who passed away left a surviving spouse or if anyone other than the deceased co-signed on certain debts. All of these details must be taken into consideration as debts and assets are handled. Working with an estate planning lawyer early can help you plan better so heirs are prepared with the right information; working with a lawyer after someone passes away can help you ensure everything is handled in a legal and efficient manner.
Source: FindLaw, "Paying the Debts of a Deceased Relative: Who Is Responsible?," accessed Feb. 24, 2017