If someone dies what happens to their credit card debt

Sometimes it seems like credit card debt will go on forever. So, it’s no surprise that many people worry about their loved ones getting stuck with their credit card debt after they die. The good news is that in most situations, no one else is responsible for your credit card debt. There are two exceptions. A joint account holder will usually be responsible for credit card debt, even if the charges were yours. And your surviving spouse may be responsible if you live in a community property state.

Otherwise, only your estate is responsible for the debt. Unfortunately, the way this plays out may be a little more complicated. Read on to learn more.

The Probate Estate

The probate estate is a legal entity created to manage your debts and assets after you die. With a few exceptions, anything you own when you die becomes part of your estate. Your estate is also generally responsible for your debts. Here’s how it works: 

An estate is typically opened when a will is submitted to probate. In simple terms, the will is filed with the probate court. If the person who died didn’t have a will, an “intestate estate” is created. The main difference between these two types of estates is that when there was a will, the deceased will have chosen the person who will manage the estate. The will also contains instructions about who is to receive the deceased’s property. 

When there is no will, the court appoints an executor (called an administrator or personal representative in some states) to manage the estate. And property is divided based on the state’s law of intestate succession. This typically means any assets go to the closest relatives, but the formula can be complicated.

The process varies slightly from state to state, but goes something like this:

1. The will is submitted to probate or an intestate estate is opened.

2. The personal representative serves notice on the beneficiaries and other interested parties.

3. The personal representative takes possession of the deceased’s property and determines its value.

4. If necessary, the personal representative sells property of the estate to pay costs and debts and to make distributions to beneficiaries.

5. The personal representative files any necessary tax returns and pays taxes from the estate.

6. The personal representative pays certain administrative expenses for the estate from the estate funds.

7. If enough money or property remains, the personal representative pays the debts of the estate, sometimes negotiating to pay less than the full balance.

8. The personal representative distributes any remaining property to the beneficiaries under the terms of the will or law of intestate succession.

9. The personal representative prepares an accounting. 

In short, the personal representative gathers the assets, pays costs of administration, pays taxes, then pays creditors for outstanding debts to the extent remaining funds allow. Those debts could include credit card debt, student loan debt, personal loans, and any other type of outstanding debt. Whatever is left is distributed to beneficiaries.

What’s not in the probate estate?

While most of the deceased’s property passes through the probate estate, there are exceptions. For example, you may own property jointly with another person with a “right of survivorship.” That means if one owner dies, their interest in the property will pass directly to the surviving owner. 

The exact process for transferring the property into the surviving owner’s name depends on the state and the type of property. It may be as simple as presenting a death certificate, or it may require some additional paperwork. Homes owned by a married couple are often titled this way. Other types of property, including cars, bank accounts, and brokerage accounts, may be held jointly with a right of survivorship. However, it is important to note that there are different ways of holding property jointly. Not all include rights of survivorship. 

Similarly, life insurance proceeds and retirement accounts often list beneficiaries. The beneficiary receives those assets directly, outside of the probate estate. They are usually off-limits to creditors of the deceased.

If property is held in a trust, it also won’t pass through the estate because the deceased wasn’t the legal owner of the property. The most common example is a living trust, which is another estate planning tool some people use to pass their property on after they die. When a living trust is formed, the person creating the trust transfers some or all of their property into the trust. During their lifetime, they may continue to use the property, give it away, or sell it as they please. 

The terms of the trust specify who will take over management when the creator dies and who will receive the benefit of the assets in the trust. When and how assets are distributed is spelled out in the terms of the trust. Sometimes, the assets pass immediately to the beneficiaries and the trust is dissolved. Other times, the beneficiaries receive regular income from the trust or a payout at a predetermined time.

Where Another Person Has an Interest in the Credit Card

If the credit card account is in your name alone, your heirs and beneficiaries generally aren’t responsible for the debt. Your estate is responsible, to the extent that there are funds available to pay the debt after higher-priority costs and debts have been paid. It gets a bit more complicated when someone else has an interest in the account. Joint account holders and authorized users are treated very differently.

Joint Credit Card Account Holders

Joint credit card accounts can be sticky, even during your lifetime. When two people open a credit card account together, each is fully responsible for any charges on the account. That’s true even if only one person uses the card. These complications may be the reason few credit card issuers offer joint accounts today. 

When one joint account holder dies, the other remains liable for the debt. Unless the account is paid in full or settled by the estate, the credit card company will look to the joint account holder for payment. The joint borrower can face all the same collection action as the deceased might have, including a debt collection lawsuit.

Authorized Users

Authorized users on credit card accounts are typically not responsible for payment of the debt. For example, if you are an authorized user on your mother’s credit card account, only your mother is responsible for payment during her lifetime. After her death, that responsibility shifts to the estate. But your obligation doesn’t change. 

One word of warning, though: An authorized user who continues to use the card after the account holder’s death could be in hot water. Using a deceased person’s account is considered fraudulent. You could be liable to the estate or to the credit card company or even face criminal charges.

In a community property state, property acquired after you are married is usually considered property “of the marriage,” jointly owned by both spouses. The same is true for most debt that is incurred during a marriage. 

As a general rule, that means that in a community property state, you’re responsible for debts your spouse incurred during the marriage. That’s usually true even if it was an individual debt, such as a credit card account that was only in your spouse’s name. The rules are a little different from state to state, though. If you live in a community property state, make sure you understand the law in your state.

The community property states are: 

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

Alaska is an unusual mix. It’s not a community property state, but married couples can choose to classify some or all of their assets as community property. Usually, though, a creditor can only collect from the assets of the spouse who incurred the debt or from that spouse’s share of the community property.

What To Do After the Credit Card Holder Dies

If you’re an authorized user, stop using the card immediately. You’ll also want to tell the credit card issuers that the borrower has died. The personal representative of the estate will be the one to negotiate any payment with the creditor, so don’t worry about anything like that. Your goal is to get those accounts canceled. The recently deceased are often targets of identity theft. The estate isn’t responsible for fraudulent charges, but sorting it out can take time and money. 

You’ll also want to notify the three major credit bureaus: TransUnion, Experian, and Equifax. They will typically require a copy of the death certificate and will likely require that the notification comes from either the surviving spouse or the personal representative of the estate.

If you are a joint account holder, you’re responsible for payments moving forward. You’ll want to begin making those payments right away, rather than waiting to see what is paid by the estate. Delaying payment during the administration of the estate could lead to late fees, added interest, and even a hit to your personal credit score. 

Let’s Summarize...

Generally, surviving family members, heirs, and beneficiaries are not responsible for credit card debt left behind by the deceased. But there are exceptions. Some creditors and debt collectors may ask family members to pay debts they’re not responsible for, so be prepared. It’s a violation of the federal Fair Debt Collection Practices Act (FDCPA) to tell you you’re legally responsible for a debt if you aren’t. But it’s not illegal for a debt collector to ask you to pay.

In this article, we focused on credit card debt, but the rules are similar for student loans, personal loans, and other types of unsecured debt. If a friend or family member co-signed the loan, they typically remain responsible for the full balance. And, in a community property state, the surviving spouse may be liable for other types of debt incurred during the marriage.

You will likely be responsible for the full credit card balance if you are a joint account holder, even if none of the charges are yours. But, that’s not true if you’re an authorized user. Make sure you understand your status on the account before making any payments. 

If you live in a community property state, you may be responsible for your spouse’s credit card debt after he or she dies. But, you’re typically only responsible for debt incurred during the marriage. And the specifics are different from state to state. If you’re in a community property state and your spouse left credit card debt or other debt that isn’t paid by the deceased’s estate, it’s a good idea to speak with an attorney. Getting state-specific legal advice about the outstanding debts could help you avoid costly mistakes.