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Have you ever wondered what happens to credit card debt when you die? Unfortunately, it doesn’t just disappear. Even after being notified of a customer’s death, credit card issuers can try to collect any money they’re owed.That doesn’t necessarily mean the debt burden will fall to the loved ones left behind. According to the Federal Trade Commission (FTC), family members typically aren’t obligated to pay the debts of a deceased relative from their own assets.But there are exceptions, and a spouse or someone else could end up on the hook for the unpaid balance, depending on how the account was set up or the laws where the deceased person lived. And even if the money doesn’t come directly from a beneficiary’s pocket, unpaid credit card balances still can impact the inheritance family members ultimately receive.Read on to learn more about what happens to credit card debt after death.
Who Is Responsible for Credit Card Debt When You Die?There are some scenarios in which someone could be held responsible for your credit card debt after your death:
|Someone May Be Responsible for Credit Card Debt After Death If…|
|You shared a joint credit card account.|
|You asked someone to cosign on the account.|
|You live in a community property state.|
If You Have a Joint Credit Card AccountIf you have a joint credit card and one account holder dies, then it’s up to the other account holder (usually a spouse) to pay back the debt. This is true even if the other person never used the card. This situation is becoming rarer these days, as many credit card issuers no longer allow joint accounts, even for married couples. More typically, one spouse is the primary account holder, and the other is an authorized user. If you aren’t sure if you have a joint credit card or an individual account with an authorized user, you may want to contact your card issuer for clarification.
If You Have a Cosigner on a Credit Card AccountHaving a cosigner is also rare. But if there is a cosigner on a credit card account, that person could be held responsible for the balance that remains on the card.
If You Live in a Community Property StateIn some states, the surviving spouse may be required to use shared or “community property” to pay off a deceased spouse’s credit card debt. These states include:
Alaska and Oklahoma also may be considered community property states, but only if spouses have signed a special agreement.
- New Mexico
If State Law Requires a Spouse to Pay Certain DebtsIn some states, a surviving spouse may be directly responsible for paying back specific types of debt, including health-care expenses or debts connected to a house that’s jointly owned. (You can check out your state government's website to get more information about its requirements.) Another possibility is that your state may require the executor or administrator of your estate to pay your outstanding bills using property that was jointly owned by you and your spouse.
How Are Your Debts Paid After You Die?If you don’t have a joint account, co-signer or other exception, your estate will become responsible for your credit card debt when you die. Here are some basics on how that might work:
- When a person dies, their assets and liabilities (everything that makes up their net worth) is combined, and that’s their estate.
- An executor or administrator is appointed to handle the estate as it goes through a legal process called probate. As part of that process, it’s the executor’s job to use the estates assets to pay its debts — things like car loans, credit cards, etc. — if possible.
- Once any lenders have been notified that the borrower is dead, the CARD Act of 2009 states that card issuers have a limited time to notify the executor as to how much money they’re due. Additionally, they can’t ask for any additional fees or penalties while the estate is settled.
- From there, state laws determine the order in which creditors will be paid. Some assets are protected from creditors when a person dies, including retirement and brokerage accounts, life insurance payouts and assets in a living trust. The deceased’s home also may be protected, depending on state laws and how the property is titled.
- If all the assets that are available are liquidated and there isn’t enough money left to cover all the deceased’s debts, some creditors may have to settle for less than the full amount owed. This might not be the case if the borrowed amount is secured with some type of collateral though. If there’s an outstanding car loan, for example, the lender may repossess the car and sell it to recover its money.
- Finally, if there’s money or any assets left after the bills are paid — including credit card balances — the deceased’s heirs may receive an inheritance from the estate. But if the deceased had more liabilities than assets, and none of the estate’s assets are protected, heirs could come away with nothing.
Steps for Dealing with the Deceased’s Credit CardsIt may be difficult to focus on financial matters while grieving the loss of a loved one, but it’s important to make sure the deceased’s credit card accounts are properly handled. Following these steps could help make the process easier.
Step 1: Document Shared and Individual Credit Card AccountsIt would be extremely helpful if everyone kept an updated list of credit card information just in case for their surviving spouse, executor, attorney or financial advisor. But if this documentation isn’t available, a spouse, executor or another authorized person can request a copy of the deceased’s credit report to make their own list to ensure they’re aware of all of the accounts the deceased had.
Step 2: Notify Credit Card IssuersCredit card companies should be notified of a card holder’s death as soon as possible — even if the account has a zero balance. If the card is in the deceased’s name only, the account should be closed. If it’s a joint account, it’s still important to notify the issuer that one cardholder has died. The surviving cardholder can request to have the account closed or keep it open under just their name, but the credit card terms and conditions may change.
Step 3: Authorized Users Should Stop Using the CardUsing a card after an individual or primary credit card holder dies is considered fraud, even for authorized users, including spouses. Those cardholders may want to destroy the card to avoid using it by mistake or out of temptation. Spouses and other authorized users who need a replacement may want to look at the costs and benefits of choosing a credit card of their own.
Step 4: Keep Up Timely Payments on Joint AccountsLate or missed payments could have a negative effect on a joint account holder’s credit. Setting up automatic payments or reminders might help if it’s a bill that could easily be overlooked.An authorized user shouldn’t make any payments, however, or the credit card issuer may assume that person is taking over responsibility for the entire account balance.A surviving spouse may want to contact the credit card company to determine their status on the account and whose responsibility it is to pay the bill. If it’s unclear, or if the spouse lives in a community property state, it may help to get advice from an attorney.
Step 5: Notify the Credit BureausCard issuers should report a cardholder’s death to the credit bureaus in a timely manner, and the Social Security Administration also sends periodic notices. But to ensure the deceased’s accounts are protected from identity thieves, the surviving spouse, executor or a relative also may want to contact the three credit bureaus — Experian, TransUnion and Equifax — on their own.Each credit bureau may have a different reporting process, but generally, they’ll ask for a copy of the death certificate, the deceased’s Social Security number and proof that the person making contact is an authorized representative. Joint cardholders also may want to monitor their credit reports for a while to ensure the information is accurate.
Step 6: Be Cautious When Dealing with Debt CollectorsA debt collector can call or send an email, letter or text message about an outstanding debt it wants the estate to pay. But the federa lFair Debt Collection Practices Act makes it illegal for anyone to harass or threaten a consumer at any time in an effort to collect a credit card debt.If an aggressive debt collector is making family members uncomfortable, they can send a letter informing the creditor not to contact them again. If problems persist, the collector can be reported to the Federal Trade Commission, the Consumer Financial Protection Bureau or your state attorney general.Also remember that each state has its own process for prioritizing the order in which creditors are paid by the deceased’s estate, so it isn’t up to the family to determine who will and won’t be paid. The credit card company should submit proof of its claim to the estate.
Negotiating Credit Card Debt After DeathCredit card debt doesn’t go away when someone dies, but it may be possible to negotiate a lower payoff amount. The estate’s executor or an authorized heir might want to see if the card issuer will settle for less in exchange for avoiding the time and cost of filing a claim and waiting for it to go through the probate process. However, the family may want to discuss this strategy with an attorney before proceeding.
How Can You Prevent Passing Down Debt Problems?Of course, the best way to keep credit card and other debt from becoming a burden for your loved ones is to manage your spending responsibly while you’re alive. Here are some strategies that might help:
Avoid Carrying a BalanceTo keep credit card bills from growing out of control, you could make it a goal to pay off the balance every month. If that isn’t possible, try to pay more than the minimum amount due to at least reduce the balance and minimize the interest that will be added.
Talk to a Financial ProfessionalIf you’re working with a financial advisor to grow your money for the future, why not include debt repayment as part of that plan? They can help you come up with a game plan to get your debt paid off so your heirs don’t have to deal with it down the road.
Find the Right Card for Your NeedsIf you’re struggling, it may be that you have the wrong card. Before signing up for a card, it’s worth it to take the time to compare credit cards based on your needs and qualifications. You can shop for the best interest rates and fees, as well as cash back cards and other rewards programs that might benefit you. If you’re a freelancer or small business owner, using a small business credit card or a small business no annual fee card might help you save money and better organize your records.Or you may find that transferring your balance to a 0% APR credit card is the right move to help you dump your debt. Even if you have a bad or fair credit history, you may find you have more options than you think.
Review Credit Card Options From LanternDoes credit card debt die with you? Sadly, the answer is no. And losing a loved one is stressful enough without having to worry about who’s responsible for their credit card debt. If you’re carrying a balance on an individual credit card account, it’s likely the money you owe will come from your estate. But if you have a joint account or there’s a cosigner on the account, that person may be on the hook for your bills — even if they never used the card. To avoid problems down the road, it may help to shop around for a better interest rate or other options that could help you better manage your money today. Lantern by SoFi’s credit card comparison tool can make it easier to find and compare cards that might fit your needs.
Photo credit: iStock/fcafotodigital
About the Author
Kim Franke-FolstadKim Franke-Folstad is an award-winning journalist with 30 years of experience writing and editing for newspapers, magazines and websites. Her work for SoFi covers a range of topics related to personal finance, including budgeting, saving, borrowing, and investing.