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What Happens to Credit Card Debt After You Die?
By Ian Luke MONEY RESEARCH COLLECTIVE
Most people have some type of debt left over when they pass away. And credit card debt is often the most common type. So, what actually happens to your credit card debt when you die?
The answer depends on factors such as the types of accounts you have and the people that have co-signed on accounts with you. Read on to find out what happens to your credit card debt.
Does credit card debt die with you?
When you die, your outstanding credit card debt doesn’t disappear. Generally, your estate will pay the debt, and it won’t be your family’s responsibility. Your estate includes all the money and property you own at your death. The debt may not be paid if no money is left in your estate to pay it.
Debt management after death
When someone dies, there’s a process for settling debts and taking care of the estate. Here’s a breakdown of the debt management process, including your estate, probate, executor and beneficiaries.
Estate
Your estate includes everything that belonged to you when you died, such as real estate, land, investments, furnishings and personal effects. After you die, your estate must settle any outstanding bills, including credit card arrears, loan balances on cars and homes and student loan payments. There will be an order of how things are paid, and credit card debt is usually towards the bottom of the list.
Probate
Probate is the legal process in which all of the deceased’s assets are gathered and distributed according to their will. The executor of the estate files probate documents to gain access to your assets after death. This process can take some time.
Executor
The executor of the estate is the person appointed by you or the courts to carry out the instructions in the will. To manage credit card debt if you die, the estate executor must obtain your official death certificate. The executor will alert creditors of your death and send them a copy of the death certificate.
It’s the executor’s job to determine which credit card companies will receive payment and in what order. Any remaining debts that your estate doesn’t cover will be deemed uncollectible. That means the creditors won’t receive payment.
Beneficiaries
Your beneficiaries are the people you designate to receive assets from your estate. Just because you name someone as a beneficiary in your will doesn’t obligate them to pay your debts. Generally, your beneficiaries will only receive what remains of the assets when debts are settled.
When someone might be responsible for the credit card debt of a deceased person
There are certain situations in which someone else may be responsible for your remaining credit card debt when you die. Such cases can happen when two people co-sign a credit card account, have a joint credit card account or live in a state where property belongs to both the deceased person and their spouse.
Co-signed credit accounts
While it’s rarely offered, a few credit card issuers may allow you to have a co-signer for your credit card account. If you have poor credit, having someone co-sign can make your application stronger for approval. The co-signer takes responsibility for repaying your debt if you don’t. If you leave debt attached to this credit card, the co-signer may have to pay it.
Joint credit card account
When two people are joint account holders (or co-borrowers), they equally share the financial burden of repaying the credit card debt. Simply put, your death doesn’t absolve the other party from repaying credit card debt. Likewise, you’ll be responsible for the debt if the other person in the joint account dies.
It’s important to note that this doesn’t include authorized card users — those people won’t be responsible for paying the debt.
Spouses in a community property state
In a community property state, married people are joint owners of each other’s debts and assets. This means a spouse may be responsible for paying off the debt of their deceased partner. It can include all debts incurred while married and living in the same household. The estate will be responsible for repaying any outstanding credit card debt if both spouses die.
The consequences your family might face
Having large amounts of credit card debt when you die could hurt your beneficiaries. Your debts pass to your estate. After your debts are paid, any assets still in your name will go to your heirs. But in case your debts exceed your assets, nothing is left to your loved ones. In such situations, credit card issuers regard unpaid balances as a loss.
That said, family members must be fully aware of what happens to credit card debt when you die. They should also understand their rights and responsibilities. Some debt collectors may contact family members to try to get the debt paid. Thankfully, an executor and attorney can assist with the process.
How to pay off outstanding debts before you die
The average credit card debt has reached startling heights as more consumers turn to plastic to cover rising expenses. And given how unpredictable death is, there’s a potential you could die still owing money. So, addressing your debt while still alive can protect your family. Consider the following options if you need help clearing your debts.
Make more than the minimum payment
Making more than the minimum monthly payment can help you repay your loans faster. You’ll also save money in the long run by reducing the interest you’re paying on your balance.
Use the avalanche method
The avalanche repayment method may be a great option if you have credit card debt with multiple cards. It involves paying off your card that has the highest interest rate first. This helps you save money by limiting the interest you’ll pay.
Consider debt consolidation
Another strategy you can use if you have multiple credit cards is debt consolidation. If you have a good credit score, you may qualify for a debt consolidation loan that combines your debt into one payment. However, you need to make sure this new consolidated loan has a lower interest rate than you currently have.
Let your family know about your debts
It’s best if your family is aware of your credit card debt. This will help prevent any surprise bills that may arrive after your death. Keep all relevant documents in a safe-yet-accessible place so your family can easily access them when needed.
What is the statute of limitations on credit card debt?
A statute of limitations dictates how much time is allowed from the date of an alleged offense to start a legal case. The statute of limitations on credit card debt prescribes when creditors can take legal action against you (the deceased) or your estate.
Statutes of limitations differ by state. Depending on where you live, the time it takes for a creditor to sue you or collect their debt might be as low as three years or as high as 10 years. However, when you die, the typical statute of limitations may change.
The debt is declared uncollectible after the period. As a result, the creditor must consider credit card debt forgiveness for the remaining balance. You can consult estate planning attorneys to determine how long a creditor has to pursue your debt.
An estate planning attorney can help you understand the process
Now that you know what happens to credit card debt after you die, you can take the necessary steps to shield your family from creditors. You should consult an estate planning attorney to help resolve your credit card liabilities and understand the process.
Generally speaking, an estate planning attorney can help you with the following:
- Developing a will
- Choosing your beneficiaries
- Finding ways to reduce your estate tax
- Avoiding probate court procedures
- Establishing trusts to protect your assets and beneficiaries
The attorney will ensure that your debts don’t pass on to your family and loved ones once you die. A competent attorney will give you the best advice on handling your obligations and transferring your assets. They’ll also address inquiries on the debt’s statute of limitations.
Furthermore, an estate planning lawyer can help you manage the complexities of the probate procedure. They will also teach you how to pay off credit card debt before you die. The attorney can develop a strategy based on your unique requirements and provide you with the best legal counsel available.
Lastly, a trustworthy lawyer can help you comprehend the consequences of not paying debts. Be sure to only deal with a qualified lawyer familiar with your state’s most recent estate planning regulations.