Even if the cardholder dies, the debt will remain. It will be paid from the decedent’s estate or passed on to the joint account holder. Yet, there’s more to think about.
In this article, you will learn:
- What will happen to a credit debt if the cardholder dies
- Who’s going to be responsible for paying the debts
- The steps to take when the credit cardholder dies
Read on to learn more.
What Happens to Credit Card Debt When You Die?
When you die, all your assets will become part of your estate, from which all the remaining debts will be paid. If there isn’t enough to pay everything, the remaining debt will be written off, and the estate will be declared bankrupt. This also applies to credit card debts.
A chosen administrator or executor will oversee the settling of outstanding debts. This process is called probate. The executor is usually the spouse, but the court will appoint an administrator if there is no will.
Now, let’s talk about the survivors’ responsibility for the debt.
Who is Responsible for Credit Card Debt When You Die?
Family members or beneficiaries are usually not responsible for credit card debt. Authorized users are not responsible for paying the debt unless a joint account holder exists. The debt will remain on the surviving account holder.
In community property states, spouses are typically held responsible for each other’s debt. Laws vary from each community property state, so it’s better to ask an attorney with expertise in estate law for clarification.
List of community properties states:
- New Mexico
Let’s move on to the immediate steps that should be taken when a credit cardholder dies.
Steps to Take When the Credit Cardholder Dies
If a family member or partner died unexpectedly and they had unpaid credit card debt, here’s what you can do:
1. Stop using the credit card associated with the deceased
Even if you’re an authorized user, you should stop using the credit card when the cardholder dies. Using the card after the primary cardholder’s death is considered fraudulent.
There is no problem for joint account holders to use their cards continually.
2. Gather all financial documentation.
Request a copy of the person’s credit report to know all of the accounts that they have. You can get a free credit report from credit monitoring services such as Credit Wise and Experian.
You should also request several copies of the death certificate, as the concerned parties will need them.
3. Notify the credit card companies of the death.
You should ask to close the accounts if there’s only one cardholder. Inform the credit card issuer that the other account holder is deceased if it’s a joint account. They usually request a copy of the death certificate and social security number.
4. Notify the credit bureaus.
Report the death to all three consumer credit bureaus (Experian, TransUnion, and Equifax) to prevent identity thieves from applying for credit in the deceased’s name.
They have different requirements, but they will ask you to provide a copy of the death certificate and proof of being an executor.
5. Transfer all automatic payments to an active card.
All automatic payments must be transferred immediately to an active account. This is to avoid inconvenience if the credit card is linked to various services as a payment method.
Let’s move on to the protected assets from creditors.
Assets are Shielded from Creditors Cardholder Dies
Even if the estate runs out of funds, the following assets are protected from creditors after death:
- Life insurance proceeds
- Living trust assets
- Brokerage accounts
- Retirements account
- Homes, depending on the state laws.
Credit card debt is an unsecured debt, meaning it is not secured by any form of collateral, such as a house or a car. It also means that it will be the last to be settled by the funds from the estate.
Whatever remains of the estate will be divided among the beneficiaries. The survivors need to know their rights and how they must deal with debt collectors.
Can credit card debt be inherited?
No. The family members are not held responsible for the deceased’s credit card debt. According to the Fair Debt Collection Practices Act, creditors can’t coerce the survivors into paying off debt.
Can you negotiate credit card debt after death?
Yes, if you’re also legally responsible for paying the debt. This applies to co-signers, joint account holders, or a surviving spouse in a community property state.
What debts are not forgiven at death?
No type of debt can be forgiven. They must all be paid from the deceased’s estate without exception.