Q: What happens to credit card debt after you die?
A: We all know how aggressive the credit card companies can be with debt collection, but fortunately, they won’t be following you to the afterlife for a shake down. That being said, there are situations where the deceased person’s spouse and/or estate may be responsible.
In a nutshell…
A deceased person’s estate is responsible for paying off debts, including credit card debt. The assets of the estate are first used to pay off outstanding debts and then whatever is left over is distributed to those listed in the will. If there are not enough assets in the estate to pay off the debt, then the debt will be written off (meaning the debt can’t be inherited). However in in community property states, the surviving spouse may or may not inherit their partner’s credit card debt after death (which I will discuss in a moment). If there was a co-signer on any of the credit card accounts (and assuming that co-signer is still alive) then they might be responsible for that debt, depending on the state.
The probate process – what assets are excluded?
What assets have to go through the probate process? Or in other words, what assets will creditors be able to get first dibs on before the heir? Well the answer largely depends on the state you live in. For example, Florida probate laws will be different than those in Indiana, and therefore the process and rules will be different.
Insurance benefits are often excluded from the probate process, meaning banks probably won’t be able to use them to pay off credit card debt after death. Instead, the insurance benefits are typically given directly to the policy’s listed beneficiaries. Depending on the state, things like retirement accounts and even brokerage accounts might be excluded. Many states also have laws that exclude the house from probate, assuming there is a surviving spouse and their name is also listed on the property.
The bottom line is that the laws will vary state by state, so the only way to find the answers is to talk to a qualified probate attorney in your state. If you can’t afford to pay an attorney, most counties offer free legal help for those with low to moderate incomes. To find free help in your area, check out lawhelp.org.
How it works in community property states
In community property states, most assets (and sometimes debts) acquired during a marriage are considered joint property. Therefore, even if a credit card was only in the deceased person’s name, the surviving spouse still might be responsible if they lived in a community state such as Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. But community property laws are different in every state so check with a probate lawyer to find out more.
The first steps to dealing with death and credit cards?
The credit card companies will need to be notified of the death. This is done by the estate’s executor, but if there isn’t one, then a family member may need to do it. The credit card company will usually ask for copy of the death certificate (certified copy) to be mailed to them.
Thanks to the Credit Card Act of 2009, while the estate is being settled no new late fees or annual fees can be added to the bill. Furthermore, once the credit card company has provided the the final balance, the estate will have a 30 day window where they can pay it in full and avoid any additional interest charges.
Are you cleaning up debt for someone?
Are you the son, daughter, wife, husband or other loved one that is trying to resolve someone’s credit card debt after death? If so, please be careful. Dealing with the death of a loved one is difficult enough, and unfortunately some of these creditors use that to their advantage to try and trick you into paying debts you aren’t even liable for. I have read many horror stories where creditors and collection agencies illegally bullied relatives to pay up… even though they weren’t responsible for the debt!
So as a rule of thumb, don’t assume debt collectors are being honest with you, because many will lie in order to shake you down for money. Before you pay anything, you really need to consult with a probate attorney. Remember if you can’t afford one visit lawhelp.org for free legal aid in your area to find out whether or not you actually are liable.