Settling the affairs of a loved one who has passed away is often an involved process with a lot of accounts, numbers and documents to go through. Some things like paying for funeral services are expected, and you may have even had time to get things in order before your loved one’s death. But for many people there are a lot of unknowns.
One surprise you may come across is credit card debt. The lines of credit on credit cards can be $20,000 or more. If you find that a loved one passed away with credit card debt the first thought that may cross your mind is whether or not you have to pay it.
Accounts and Assets Will Freeze at First
After a person passes, their accounts and assets will be frozen until the will can be validated, if your loved one had a will. It’s part of a process called probate. So you won’t need to address it immediately after the death if there’s a will. The freeze is done so that people can get affairs in order and everything can be figured out.
Courts and Laws Will Dictate If and How Creditors Are Paid
Once the will is validated focus shifts to paying creditors for outstanding debts that remained when the person died. The local court will need to make sure this is done before beneficiaries are involved.
The first step is identifying debts. The court will review all accounts and claims from creditors to determine what debts are owed by the deceased. The CARD Act of 2009 establishes that creditors must notify an estate of a debt in a timely manner after being made aware of the death.
Next, they will look at the type of debt that’s owed. Since credit card debt is unsecured (not attached to some form of collateral) the estate pays the debt using funds from the deceased’s remaining assets. If there isn’t enough money to pay off the credit card debt the creditor has to write it off as a loss. They can’t compel the family to pay the outstanding balance.
So the surviving family members aren’t automatically required to pay the credit card debt themselves, but it can potentially impact the inheritance that’s received.
Three Instances When a Relative is Responsible for Paying Credit Card Debt
You don’t have to worry about settling a loved one’s credit card debt after their death in many cases. However, there are three instances when another person may be responsible for paying the debt if it can’t be covered by the estate.
You Had a Joint Credit Card Account
If your name is also on the credit card account it doesn’t matter who made the purchases. Both people on the account are considered equally responsible in the eyes of lenders and the law.
You Co-Signed on the Credit Card
Like a joint credit card, co-signers are considered responsible for paying off the debt.
You Were Married and Living in a Community Property State
In a community property state marital assets are considered jointly owned, but so are debts. However, the surviving spouse’s separate assets are protected, and they aren’t responsible for any credit card debt that was separate from martial accounts.
Currently there are nine community property states:
- New Mexico
It’s important to understand the state laws surrounding debt repayment after death. There are some state laws that do require the surviving spouse to repay credit card debt in special circumstances even if you aren’t in a community property state. If you have any questions about debt repayment after the death of a loved one contact a licensed lawyer who specializes in estate law.