Tag Archives: credit card debt

Credit card debt after death – what you need to know

k15365456It’s often incredibly difficult to cope with the death of a loved one.  A creditor knocking on your door makes it even more difficult.

Can a creditor collect a credit card debt owed by your deceased parent or spouse?

There is not one simple answer to this important question.  There are many factors to be considered.  Here are 10 questions and answers to help you understand what may happen.

  1.  Are family, friends or heirs responsible for your debts?
    When you take out a credit card in your name, you’re agreeing to repay whatever you borrow.  That obligation usually doesn’t extend to anyone else.  The only exception is if you had a joint account holder.  That person would be responsible for all debt incurred through use of that credit card, even if the debt was not run up by  that joint account holder.
  2. Direct creditors to the executor.
    When you die, your obligations will transfer from you to your estate.  The executor of your estate will be responsible for handling all of your estate’s financial issues, including your debts.  If a family member gets a call about a debt and isn’t the executor, he or she should direct the caller to the executor and tell that person not to call again.
  1. Notify creditors and the credit bureaus.
    The executor should notify any known creditors as soon as possible about the death.  They should also notify the three main credit reporting agencies – Experian, Equifax and TransUnion – and request that the accounts should be flagged “Deceased: Do not issue credit”.  This will help prevent a very common problem – identity theft of the deceased.

The executor should also request a copy of the deceased’s credit report.  This will help him to identify any outstanding debts.

  1. Find out who’s responsible.
    As previously mentioned, people who request credit together are equally responsible for the total debt.  The same is true with a co-signer of a loan, who by cosigning is guaranteeing the debt of the borrower.

    Authorized signers on credit card accounts, however, aren’t liable.  They didn’t originally apply for the credit; they were just allowed to ”piggyback” on the account of the person who did.

  2. Stop using credit card accounts.
    If you’re an authorized user on a credit card account, you shouldn’t use the card after the main cardholder dies.  Because you’re not liable for the debt, this could be considered fraud.

    A surviving spouse can request a card in his or her own name.  However, it will most likely be a new card application, based on the survivor’s credit history, income, etc.

  3. Don’t split up all of the belongings yet.
    Nothing should be distributed until after the estate has settled its debts.  If there’s not enough money in the estate to pay those debts and belonging have been distributed, the heirs could become responsible for those debts.
  1. Ask creditors for help.
    If a surviving spouse is a joint account holder and is having trouble paying the bills, he or she may be able to work something out with the creditors.  He or she may be given time to get organized or to come up with the needed money.
  1. Community property states are different.
    If you live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and, if you choose it, Alaska) one spouse can be liable for the debts of the other, even if they didn’t agree to them or even know about them.  In these states, the surviving spouse will most likely be responsible for any credit card debts.
  2. If an estate can’t pay, the lenders lose.
    If the estate has more debts than assets to pay them, creditors may be forced to write off those debts.
  3. When in doubt, contact an attorney.
    Figuring out what to do about estate debts can be complicated so you might want to contact a probate attorney for help.

    For more information about identity theft of the deceased or how to settle an estate, check out our website, www.diesmart.com
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If you owe money when you die, who pays the debt?

clipart0275If you’re like most people, you have some kind of debt – a mortgage, a credit card bill, school or a car loan. What happens when you die? Do your heirs have to pay your bills for you?
According to a recent U.S. News and World Report article, the general rule of thumb is that if there’s enough money in your estate, your bills will be paid out of the assets you’ve left. Those assets will be liquidated to generate the necessary funds.
If there’s not enough money in your estate, here’s what will probably happen. I say “probably” because there are no firm rules in this area and each case is different.
Credit card:
As long as you don’t have a co-signer on your credit card, the odds are that the debt will be discharged by the credit card company. If you have a co-signer, that person will be responsible and will have to pay whatever is owed.
Mortgage:
If the house isn’t paid off, the bank may decide to foreclose…unless someone takes over the monthly payments.
Car:
If you are making car payments when you die, your vehicle can be repossessed by the bank. However, if one of your family members is willing to take over the loan, there should be no problem.
There are a few caveats that you should be aware of.
If you owe a lot of money and make deathbed gifts, your creditors may be able to convince the court to return those gifts to the estate so that their bills can be paid.
Your children or spouse should be careful about cosigning financial agreements for you. This personal financial guarantee may obligate them to repay any money owed through these agreements after you die.
If you don’t want your loved ones “haunted by debt collectors” after you’re gone, make sure they’re careful about what they sign.
For more information about how to manage your estate and what happens when you die, go to www.diesmart.com.