When You've Passed On, Who Inherits Your Credit Card Debt?

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Death grave cemeteryWhen we die, we leave all kinds of things behind, including our debts. And it's not always clear what exactly happens to those obligations.

Consider your credit card debt. According to Aaron Crowe at the Credit.com blog, your heirs are not likely to be stuck with it, though some parties might want you to believe otherwise.

It's not unheard of, for example, for a debt collection agency to contact the bereaved, seeking loan repayment. Thanks to the Fair Debt Collection Practices Act, there are many rules that those debt collectors must follow.

For example, anyone seeking to collect on the debt of a deceased person needs to address that person's estate, by contacting the executor or whoever is in charge of it. (If you believe a collector who has approached you is violating any rules, contact a lawyer.)

There are more recent regulations governing debt collection and the deceased that can also help. First, the Credit CARD Act of 2009 expects credit card issuers to inform an estate's executor quickly about any sums owed, and to not add fees and penalties while the matter is being settled. Then, in 2011, the Federal Trade Commission issued guidelines in 2011 aimed at reining in aggressive collection activity related to deceased debtors.

Who's Responsible?

Typically, the estate of a deceased person is responsible for his or her debt. If a debt has been held solely in the name of the deceased, it's paid off with assets in the estate, sometimes by selling property (such as a house or car) in order to generate the funds with which to do so. If the debt exceeds the assets, the estate notifies the card issuer that the estate doesn't have some or all of the money owed, and the sum is generally written off by lenders.

It's not always quite so simple, though. If the deceased was married, and a spouse was a joint owner of the account or co-signer on the debt, then the spouse is generally liable for that debt.

In community-property states, things get muddier, because debt taken on during a marriage can be considered community property, even if it was only in the name of the deceased. This is another situation where seeking the counsel of a lawyer is a good idea.

Being an authorized user on a credit card account doesn't mean you're liable for that debt if the cardholder dies, but it can still cause problems. Crowe tells of a New Jersey man whose credit rating was damaged when creditors reported unpaid debts to credit agencies that were related to his late mother's account, on which he'd been an authorized user. Simply using a card, whether you're authorized or not, can lead to collectors calling.

Keep in mind that even if you're sure you're not liable -- or are fairly certain you can make a good case for that -- it can be costly to be absolved, as lawyers and the legal process aren't free.

If You're an Heir

If a loved one dies and you expect to inherit some money, know that you won't be first in line. You'll receive your due only after creditors are paid, and even they come after categories such as taxes, mortgages, and funeral expenses.

Certified financial planner Jeffrey Field recommends that when a relation passes away, you cut up his or her credit cards and send them to their issuers, along with a notice of the death (including the date). Alert the three main credit reporting agencies as well -- Equifax, Experian, and TransUnion -- asking them to close their reports on the deceased. In addition, look into whether the deceased had insurance to cover credit card debt remaining after death. It's not always a smart coverage to buy (as it's best not to let credit card debt accumulate), but if it's there, it can be put to work.

The good news is that there's a good chance that a loved one dying with credit card debt won't hurt you much or at all, financially. Learn the rules, so that you don't have to deal with unnecessary headaches.


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22 Comments

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Nikato Muirhead

this advice about cutting up credit cards seems to be bad at least in some cases. If we have a deceased person who managed to maintain very good credit, should that credit history not be passed down to another responsible relative? There are companies who seek out people's good credit accounts in order to keep them going as long as possible. Credit is building for somebody.

October 02 2013 at 5:51 AM Report abuse rate up rate down Reply
Rodney Vogt

who cares your dead

March 04 2013 at 11:38 PM Report abuse rate up rate down Reply
adavis1527

Odd that when you die, the Government wants to get your inheritance while it does notthing to deserve YOUR earnings? That is what ticke me off. What could possibly entitle them to earnings of a US citizen who paid taxes on that money when they earned it.

March 04 2013 at 10:07 PM Report abuse -1 rate up rate down Reply
walk1111

A prudent person doesn't use credit cards.
Avoid ALL debt.

March 04 2013 at 4:54 PM Report abuse +1 rate up rate down Reply
1 reply to walk1111's comment
rdrvr1752

Actually, prudent people use credit cards responsibly. I had my first credit card as a college freshman and have never paid interest in forty years of using them. My score is consistently over 800 with every rating service and I've accumulated substantial cash rewards. If your dictum again debt includes paying cash for a home, bully for you. Have you ever tried renting a car without a credit card?

March 04 2013 at 6:28 PM Report abuse rate up rate down Reply
John

The estate of the deceased person owes the debt. If there isn't enough money in the estate to cover the debt, it typically goes unpaid. But there are exceptions to this rule. You may be responsible for the debt if you:
co-signed the obligation;
live in a community property state, such as California;
are the deceased person's spouse and state law requires you to pay a particular type of debt, like some health care expenses; or
were legally responsible for resolving the estate and didn't comply with certain state probate laws.

There is a free consumer site called "Bad Credit MD" that offers free advice for people with debt problems and/or bad credit.

February 23 2013 at 12:57 AM Report abuse +1 rate up rate down Reply
setanta_1

WHAT GIVES WITH THESE TWERPS AND THEIR TECHNICAL DIFFICULTIES/try again another time ?
WHY ARE SOME PAGES ACCEPTING REPLIES and the MAJORITY WITH A PROBLEM ?
and WHY ARE OTHERS POSTING WITHOUT PROBLEMS AND THEY ARE THE LIBTARDS AS WELL ?

February 21 2013 at 10:40 AM Report abuse -1 rate up rate down Reply
1 reply to setanta_1's comment
setanta_1

bunch of fecified rectal tubes--EVEN THEIR HELP PAGE refused the enquiry stating invalid email.

February 21 2013 at 10:41 AM Report abuse -2 rate up rate down Reply
Bill

I'm not liable for any debt but my own. Good luck with collecting otherwise!

February 20 2013 at 1:08 PM Report abuse +3 rate up rate down Reply
setanta_1

............letters kept coming in--something about the ESTATE and bills.....the estate--what estate ? isn't an estate a large area with gardens and fields,decent or fine home ?? ? we gave the address/ cemetary plot number to them all and never heard from them since.

February 20 2013 at 10:18 AM Report abuse rate up rate down Reply
mrshohn

Never, EVER, believe a word a bill collector says unless you KNOW that it was a debt you owed...in which case you probably don't care anyway. I've received calls for people I don't know, have never known, and been called a liar for saying so. Just hang up. They don't care if it's not you, they just want money.

February 20 2013 at 5:54 AM Report abuse +3 rate up rate down Reply
1 reply to mrshohn's comment
setanta_1

even more fun when u have a "common" last name --kept getting the calls,and searched this individuals name and found out he was deceased but the collectionS agencies refused to do their homework-
so glad i disconnected the landline due to the BS from veRIzon and their charges and went right down and bought a lousey 10dollar trac phone that does the job --no more calls

February 20 2013 at 10:23 AM Report abuse rate up rate down Reply
tamsen86

My heirs will thumb their noses at anyone trying to collect on my credit card debts should I pass on while I still owe. They know the interest rates and finance charges I've paid.

February 20 2013 at 2:46 AM Report abuse +3 rate up rate down Reply