Have you ever wondered what happens to credit card debt when you die? Can lenders immediately seize funds from your cash or investment accounts? Can they harass your loved ones? Keep reading to find out.
What happens to credit card debt when you die?
Disclaimer: I’m not a legal expert. What I’m about to share is simply the result of my research into what happens to credit card debt when you die. Please consult a legal expert before making estate planning decisions or using this information in any other consequential way.
Any joint account holders will be on the hook
According to Capital One, all account holders share responsibility for making repayments when it comes to joint credit cards. This holds true in the event of one account holder’s death; any remaining holders must make repayments.
However, it’s worth pointing out that (according to the aforementioned Capital One article) a “joint account holder” doesn’t fall into the same category as an “authorized user.” Someone classified as the latter isn’t necessarily obligated to repay the primary account holder’s debt – except in some circumstances, which I’ll dive into next.
If you live in a community property state, your spouse may be responsible
According to Investopedia, community property law dictates all assets and financial obligations accrued during a marriage must be split equally between each spouse. If one spouse dies, the other subsequently solely owns (or, in the case of debt, is solely responsible for) any joint property.
States in which community property applies include:
- New Mexico
Additionally, some states let couples elect to abide by community property laws if both spouses agree. These include Alaska, South Dakota, and Tennessee.
Your spouse could also be on the hook depending on other state laws
Community property law isn’t the only legislation that can result in your spouse owing money following your death. According to Equifax, some states hold a surviving spouse accountable for debt accrued in specific circumstances (i.e. related to healthcare or a jointly-owned property).
Given how nuanced these laws can be, it’s important that you consult with a legal expert in your state to understand the implications of your death on loved ones.
Your estate could also be on the hook
Following your death, lenders you owe money may be paid before your beneficiaries. So if you’ve left behind $100,000 to be distributed among your relatives but also owe $20,000 in credit card debt, the issuer may take their cut first and leave your relatives with $80,000.
In this case, your estate’s executor (someone appointed either by you or by a court if you didn’t appoint anyone) would oversee that process.
Someone will need to track down all of your accounts
Your executor will need to find all of your financial accounts and handle cleaning up your affairs following your death. You can make their life much easier by keeping an organized list of accounts (i.e. in your will) and appointing them through the proper channels (speak with a will attorney for more information).
Your credit card’s annual percentage rate (APR) may freeze
Federal regulations limit the circumstances in and amount by which credit card companies can adjust interest rates following the primary account holder’s death.
For example, credit card issuers cannot charge additional fees (i.e. late fees or annual fees) except when the card’s APR is determined by an entity beyond the card issuer’s control and that entity raises the rate.
What to do if a loved one passes away with credit card debt
Here are some steps legal experts often recommend surviving loved ones take following someone’s death.
1. Stop using credit cards for which the deceased is the primary holder
Even if you’re an authorized user, purchasing items through a deceased person’s credit card account can present serious legal issues as (according to creditcards.com) it constitutes fraud. You’re essentially impersonating the account holder, which the lender will become aware of upon identifying the deceased’s date of death and realizing transactions we’re made afterward.
This doesn’t apply if you’re a joint holder since the accounts are legally yours as well. Nonetheless, it may be wise to check with a legal expert (or your card issuer) before making subsequent transactions, just to be on the safe side.
2. If you are the deceased’s executor, seek to identify their open accounts
According to EstateExec.com, common places executors can look to get a picture of the deceased’s financial standing include:
- their will
- some other list they may have prepared prior to their death (i.e. an informal note on their computer)
- accessible financial statements
- a recent tax return
- an accountant or other financial expert the deceased worked with
According to Equifax, executors can also request the deceased’s credit report to see all of their open credit card accounts prior to evaluating any obligations they must fulfill. It may be worth requesting the deceased’s credit report from multiple bureaus since an individual bureau may not be aware of all debt that person has.
3. Determine how many death certificate copies you need
Some institutions require original copies of death certificates while others might accept copies. It’s worth checking ahead of time to avoid any delays. Check out this article for a breakdown of common scenarios in which you need the present the deceased’s death certificate.
4. Notify credit card issuers of the person’s death
Notifying a credit card issuer as soon as possible following your loved one’s death can help them begin the account closure process, including monitoring for fraudulent transaction attempts (i.e. by someone who has access to the account without your knowledge and may attempt to spend money).
5. Notify credit bureaus of the person’s death as well
According to Equifax, when one credit bureau (Equifax, Experian, or TransUnion) has been notified of a person’s death, their credit report becomes sealed. Any subsequent attempts to open borrowing accounts in that person’s name will be flagged as fraudulent.
Consequently, Equifax recommends contacting at least one national bureau (which will then notify the other two) following a loved one’s death.
To do this, you’ll typically need information about the deceased such as their:
- full name
- Social Security number
- date of birth and date of death
- death certificate
- any other legal documents the credit bureau may request
What happens to credit card debt when you die? Conclusion
While I’m not a legal expert, I hope this article has given you some valuable food for thought regarding what happens to credit card debt when you die – and what steps people should generally take following a loved one’s passing.
For more of my articles on the topic of financial planning, click here.