For those of us who buy on credit, we often think about our payments -- keeping them on time, paying more than the minimum, and getting our balance down. But what happens to credit card debt in the case of a death? The estate makes the payments on credit cards and other debts, but if a person dies with more debt than assets to pay or cover them, often the credit card companies are stuck with the balance.
There are, as in so many other things, exceptions that could leave debts of a loved one to their family. After the death of a loved one, many people find themselves surprised by the leftover credit card debt of their spouses or parents. Joint cardholders, for example, are liable to make the payments (unless they are only an authorized user instead of a cosigner). In cases of divorce, if a settlement was made where one spouse agreed to pay off the joint card and died before then, the ex-spouse may be sought out by the credit company.
Debts are paid out from the estate before the beneficiaries receive any distributions per the will of the deceased. The credit card companies must file a claim within a certain time window, however, and as credit card debt is unsecured (unlike, for example, a car payment secured by the car), they are likely to act quickly. The good news is that they should act quickly, and the beneficiaries will be able to move on from the estate process.
If a family member dies, one of the first administrative actions to take is notifying the credit card companies. This may help prevent them from contacting the estate at all, and if nothing else, may gain more time to sort out the estate and the grieving process. When planning your will, be sure to make allowances for your credit card debts, or pay it down as much as possible to prevent your loved ones from having to pay it off later.
Source: CNBC, "What Happens to Credit Card Debt When You Die?" Sally Herigstad, Aug. 21, 2012
- Our firm handles issues of wills, estates and debts like those discussed in this post. Visit our Philadelphia complex estate administration page for more information.