There are many myths surrounding credit card debt, and a fair number concern what happens to a balance after the person who borrowed the money dies. Some people think the obligation will be automatically wiped clean, while others believe the debt is transferred to relatives.
The truth is that it all depends on the situation. Here’s the real story about what happens to a person’s credit card debt after they die.
If You Are a Joint Account Holder
If you opened a credit card with another person, you have a jointly held account. This means you added your signature to the application, and the credit card issuer used your income and credit history, as well as the other person’s information, to determine qualification. The credit card account appears on your credit report as a joint account.
As a co-signer, you are equally liable for any debt acquired with the account as soon as it was opened, whether or not you made any of the charges.
The other person listed on the account may have been the primary account holder, meaning they received the bills and made the payments. But if they failed to pay, the issuer would have the right to contact and collect from you.
If the other account holder dies, you are responsible for paying the entire balance. If you do not have enough money to make the payments or repay the debt, call the issuer and let them know what happened. You may be able to enter into a hardship program where you make smaller payments or settle for less than the amount owed.
If You Are an Authorized User
Many credit card issuers don’t allow joint account holders. Instead, the person who opens the account can assign cardholders who have charging privileges, called authorized users.
As an authorized user, you can use the card, but ownership of the account never shifts to you. Any charges and payments made remain the responsibility of the primary account owner. The account owner can request money from you, but the credit card issuer can’t, even when you are the one who racked up the debt.
That is why you are not on the hook for any balance that is left behind if the account owner dies. But that doesn’t mean the creditor won’t try to collect from you.
After all, your name is associated with the account. It is listed on your credit reports, showing that you are an authorized user. The pressure to pay may be intense, especially if the debt has gone into collections. The collector may insist that you co-signed on the account when you didn’t.
But there is nothing the collection agency can do without evidence to prove that you are a joint owner. Your credit report will clearly indicate that you are an authorized user, not a joint owner.
It is important to stop using the card after the person has passed away. It is considered credit card fraud to continue spending with the card. Not only would you be responsible for the debt you incurred, but you may also face legal action.
Contact the card issuer to have yourself removed as an authorized user.
If You Are a Spouse
This is where it can get a little tricky. In general, if your spouse dies while owing money to a credit card issuer, you are not responsible for their debt. The major exception is if you are a co-signer (see above), but state law can also come into play.
There are nine community property states in the US — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin — and if you live in one of them, both assets and liabilities that were acquired during the course of the marriage are considered community property.
This means that it is possible for you to be saddled with credit card debt from an account that you never signed for — or that you never even knew existed.
If You Are the Adult Child
Whether you live in a separate property state or a community property state, children are not personally responsible for their parents’ liabilities. This includes minors as well as people over the age of 18.
This means that if you discover your parents owed money to a credit card company and are concerned the issuer will pursue you for payment, you can breathe a sigh of relief. You will not have to pay their debt, and the account will not suddenly be listed on your credit report.
When There is an Estate
An estate is not a person but an entirely separate entity. It is the sum of the assets (such as cash, property, and investments) that a person owned at the time of their death. Unpaid debts of the deceased will be satisfied from the person’s estate, which goes into probate.
Using a simplified example (and it is rarely this simple), if the person died with assets totaling $10,000 and one debt — a credit card balance of $8,000 — the amount left over in the estate would be $2,000.
If the debt exceeds the value of the estate, the estate is considered insolvent. More is owed than is owned.
If you are the spouse or relative of the deceased, you are not responsible for the remaining debt. But you are out of luck if you expected an inheritance and the estate is insolvent.
Also, be aware that the deceased person’s creditors will be prioritized. If they have secured debts, such as a mortgage or car, those accounts will be satisfied first. Unsecured debts, like credit card bills, will come after. Beneficiaries are typically paid last.
When There is No Estate
If a person passes away with no estate and there are no other people attached to the credit card balance, the debt essentially dies with them. The credit card issuer is left with little recourse.
With no money to claim from an estate and no other person legally required to take over the payments, the company will be forced to write the debt off from its books. And that will be the end of that.
Know the Law and Get Help if Necessary
Understanding what is fact and fiction regarding credit cards after death is important, but it’s also a good idea to have information about consumer laws that can protect you in case a creditor gets a little overzealous.
You are protected by state law if an original creditor, such as a credit card company, presses you for payment when you do not believe you are in any way responsible. Contact your state district attorney’s office for assistance or reach out to a lawyer.
And remember: You are under no obligation to speak with a creditor. Tell the person that the debt is not yours and for them not to contact you again.
In the event that a third-party collector has purchased the debt from the credit card issuer, you are protected by federal law. The Fair Debt Collection Practices Act has guidelines regarding how a collection agency can pursue you. One of the provisions is that if you tell them to stop contacting you by sending a cease and desist letter, they must abide by your request.
But be sure that you are not legally connected to the account. The letter can prompt a lawsuit if you do owe the money and they choose to go in that direction.
Losing a person you are close to can be an incredibly emotional and confusing time. If you need help sorting your bills, including sifting through those you must pay from those you don’t, reach out to an expert.
A nonprofit credit counseling agency, such as Advantage Credit Counseling Service, can be a great first step. They do not charge for appointments, and one of its professionals can help you understand your financial and legal rights.