What Happens to Your Credit Card Debt When You Die?
Strictly speaking, survivors of the deceased don’t “inherit” the debt from their passing loved one. It’s a little more complicated than that. The assets and estate of the deceased will be subject to creditors and lienholders before it is distributed to survivors, so debts can be paid out of the deceased’s estate. This supersedes whatever they wrote in their will. After creditors and lienholders have been paid back, the rest of the inheritance is disbursed.
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Credit Card Debt After Death
Debt does not automatically go away on death. That doesn’t automatically put survivors on the hook; sometimes, creditors do end up losing out, and we’ll discuss debt forgiveness later. There’s no one rule about credit card debt after death, as states have different laws. Who is on the account also greatly affects who needs to pay, as well. It generally pays to consult an attorney just so you know your rights and can thus protect the estate and assets.
If you are an authorized user, not the account holder or cosigner, good news: you aren’t responsible for the debt. You were authorized to use the card, but not responsible for payments like the actual account holder, and this remains true after the account holder’s death.
If you are a child and your parent dies, for example, being an authorized user does not automatically mean you have to pay — the possibility of the debt being taken out of what will become your inheritance notwithstanding. However, if you continue making purchases or using the card as an authorized user after the account holder dies, that’s fraud, which will put you in far more legal trouble than if you didn’t pay a bill. Think of it this way: if you know the card won’t be paid, but you still use it, you are essentially committing fraud.
Credit Card Fees
The Credit Card Act of 2009 limits creditors tacking on fees to an estate. Feeds and penalties can’t be levied while the estate is being settled. There can be no retroactive rate increases, and there must by 45 days notice if the rates go up. Additionally, the executor of an estate must be quickly informed as to whether there is enough money in the estate to cover debts.
Credit Card Debt Collections
The FTC limits credit card companies’ ability to collect debts from survivors; this mostly limits tactics and regulates communication. For example, they cannot hound you or intentionally annoy you.
There are three things to keep in mind if a collections agent calls you. First, have they verified the debt? Request that they do that before calling you again, as you may not be liable.This is the second part: liability. If they cannot verify the debt, or verify that you are an account holder or cosigner, they cannot collect from you. Instead, they will need to approach the estate.
Am I Responsible for my Spouse’s Credit Card Debt?
Marriage doesn’t automatically make surviving spouses responsible for debt; again, what matters is who the account holder is, and whether spouses are authorized users or cosigners on credit card accounts. If you are a cosigner or account holder, you are probably out of luck; debt holders will come calling for their money.
That’s not to say you won’t be technically responsible. If your spouse dies with credit card debt, there’s money in the estate, and you are the beneficiary, the money will come out of the estate before you see it. This might feel like you are responsible, as you are getting less money overall, but in reality the deceased is essentially settling debts with money they had.
In any case, it’s for the best if you close out the account if you are not an account holder.
Credit Card Debt in Community Property States
Community property law states, however, work differently. These states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska is an “opt-in” state, where a couple must jointly agree that their property is communal.
In general, this means that, even if you are only an authorized user on the account, if you benefited from your spouse’s purchase, such as new appliance for the kitchen, you will still be liable for the debt incurred to buy the appliance. States may have slightly different laws; be sure to check the laws of community property in your state.
Credit Card Debt Custody After Divorce
If you got divorced and your spouse died, you may liable for joint credit card debts — but only those incurred before the divorce. This is even if the deceased spouse received custody of the credit card debt as part of the divorce settlement. Your name is likely still connected to the account, so don’t be surprised if you get calls from collection agencies for unpaid debt.
In a community property state, only the joint money can be used to satisfy the debt. Separation, death, debt, and community property laws can get complex quickly, so it would probably be a good idea to talk to a probate lawyer instead of trying to figure it out yourself.
Credit Card Debt Forgiveness After Death
Credit card debt is unsecured, so any secured debt will come first in probate. Mortgage and auto lenders, which are secured debts, will be at the top of the list to recoup loans and assets from the estate of the deceased. Credit card debt is basically the last debt to be paid. After they are paid, you finally get whatever is left of the estate.
What if there is nothing left in the estate? Credit card lenders may write-off the debt if they know the estate doesn’t have enough assets to cover it, or if they are last in a long line and know there won’t be enough after all the other liens. They forgive the debt, meaning the estate won’t have to pay — but it’s likely because it could not pay, anyway.
The final determination of who has to pay for the deceased’s credit card debt can be ambiguous and mired in state law. Rather than trying to figure out whether you or the deceased’s estate has to pay, it is best to ask a lawyer.
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A former newspaper journalist, Cole spends his free time reading, writing, playing video games, watching movies, and learning about every subject under the sun. He lives with his wife and daughter in Idaho. Follow Cole on Twitter: @ColeMayer42
This post was updated February 28, 2019. It was originally published October 16, 2018.