You might have been sitting on a couch and suddenly get struck by the thought that what will happen to your credit card debt when you die? One thing is sure the creditors won’t nag you any more to pay off the debt. But it is an entirely different story for your survivors. They might be held responsible for paying off your credit debt.
But in most cases, your credit debt will be paid off from your estate as assets. Let’s get into the details very quickly.
Who Is Responsible For Your Credit Card Debt When You Die?
We know that you won’t need to pay off your debt anymore, and your debt will be paid off from your estate as assets. So, when you die, the debt you leave behind must be paid as assets before your estate is distributed among your heirs or your spouse.
By meaning estate, it is the total assets you have at the time of your death. If you have an executor to your estate, they pay off the outstanding credit card debt by using the assets of your estate. You can appoint the executor by naming them in your will or by adding them to your estate plan. If you don’t have appointed an executor, the probate court will appoint an executor on your behalf. They will execute the repayment by using your estate’s assets.
Your estate will be considered insolvent if your debts are more than the value of your assets. This can become troublesome for your survivors as they now have to pay off your credit card debt.
If you’re a joint account holder for a deceased person, you should read the following carefully. The credit card issuing company will check both the account holders’ credit to offer them the credit. The credit card balance’s responsibility falls on both the joint account holders. So if the other person is dead, the joint account holder will be held responsible for the outstanding debts. You might not necessarily be a blood relation, heir or spouse, to the person but can still be a joint account holder.
If you are just an authorized user and not a joint account holder, you can still use the credit card for purchases. But the primary account holder is responsible for paying off the outstanding balance. Generally, it is not the responsibility of the authorized user to pay off the credit card’s debt.
However, there is one exceptional situation where an authorized user who is not an account holder is held responsible for the debt. In community property states, the deceased person’s spouses are responsible for the debts.
If you are residing in any one of these states:- California, Louisiana, Arizona, Nevada, Idaho, New Mexico, Wisconsin, Texas, and Washington, you are living in a community property state, so you are obliged to the credit card issuer to pay off the debt. It is best to seek an attorney of Law for advice because the obligation to the responsibility of the debt varies from one state to another.
What should You Do if a Cardholder Dies?
If you are an heir or spouse of a person who has recently passed away with credit card debt, follow these steps to stay out of trouble.
1. If you are just an authorized user and not a joint account holder, stop using your credit cards for any purpose. Many are unaware that using a dead person’s credit card is considered fraud, even if you are an authorized user. It might be good practice for both the spouses to be the primary cardholder to avoid this unfortunate situation.
2. The next step is to list out the credit card accounts of the person. The spouse or the executor can legally request and acquire a copy of the late person’s credit card report to do this.
3. Make the credit card companies aware of the card holder’s death and request to close the credit card account. If you are a joint account holder, you can change you as the sole account holder of the card, or you can close the account.
4. Remember to notify the bureau of consumer credit. When you report the death of the holder to credit card companies, they will update this to the bureaus, but it might take a little longer. You can directly report the death to the Experian, TransUnion, and Equifax consumer credit bureaus. This will help you from identity theft which can cost you a fortune.
5. Don’t make delayed payments on the credit card in which you’re a joint account holder. This can reduce your credit score, making it difficult for you to obtain a credit card in your own name.
Note: If you’re just an authorized user of the credit of the late person, don’t make any purchase or payments on the card. And don’t make any payment for the debt. If you do so, the credit card issuer can make you responsible for the whole outstanding balance by saying you have taken the responsibility.
However, if you are residing in a community property state, things may vary. So approach a lawyer for any legal advice.
Assets That Are Immune To Creditors
We have previously seen that the creditor’s debt will be paid off by the estate assets of the deceased person. But, what if the debt is larger than the assets they hold in the estate? Will the spouse or heirs who don’t have a joint account should pay off the debt from their own packet or empty the late person’s life insurance?
That’s not certainly the case because, unlike car and mortgage loans, credit card loans are not secured loans. Hence they are not considered a top priority. Unsecured loans won’t get paid in most cases.
Retirement accounts, life insurance, assets in a living trust, and funds in brokerage accounts are safe and protected from creditors. So you will not need to worry about the funds and assets in these forms as they are completely immune to the creditors.
To ensure that additional trouble doesn’t fall on the survivors, make timely payments and stay out of credit card debt. If an unfortunate event like the death of your spouse or co-worker with whom you maintain a credit card joint account, notify the credit card issuer and the consumer credit bureau. And also, make timely payments if you are a joint account holder.