Credit Card Debt After Death
Credit cards are important tools for daily and monthly expenses. When used correctly, they offer the credit card holder a 30-day interest free loan – you make a purchase on your credit card today, but you don’t have to pay the actual bill until you receive the next month’s statement. I wrote a piece about various creditor issues at death last April, but today I want to focus on what happens to outstanding credit card debt when you die. There are a few important factors to consider:
- Was there a joint account holder? If so, a careful reading of the credit card agreement likely holds the surviving card holder responsible for the full debt.
- Was there a probate estate opened? If there is no joint account holder, then the debt becomes the liability of the decedent’s probate estate. If probate is required at death, the appointed Personal Representative will be responsible for addressing all debts, including credit cards. Remember, probate is a court proceeding that can and should be avoided with proper planning.
- Was probate avoided? Perhaps the decedent had a good estate plan and avoided probate through a combination of a trust and beneficiary designations. Without probate, the credit card company (or the debt collection agency that typically buys the debt) has less leverage to collect on the debt because there is no formal place to file the debt claim. Sometimes the fact that there is no probate results in the debt being dropped. Other times, the trustee of the trust can negotiate the debt down significantly because the only recourse the credit card company has is to open a probate estate on the decedent just to collect the debt—very costly.
- Are family members on the hook for the debt? Generally, no, unless they co-signed for the debt or are joint owners on the credit card. There is no legal obligation simply because one is a spouse or child of the credit card holder.
- What should I do if I’m handling the financial affairs of someone who dies with a credit card? Immediately contact the company so that they stop any future purchases that could be fraudulent. Proceed slowly and don’t feel obligated to give too much information. Remember, you might not have a complete financial picture of the decedent for several weeks. If you know that there will be no probate, tell them. If you aren’t sure if there will be a probate estate, let the credit card company know that too. Do not share any details of the decedent’s financials. The credit card company does not have a right to know that unless they actually sue for collection.
Credit cards make life easier. Hopefully, the information above will help to make credit cards easier after the death of the card holder, too.
