Credit card debt does not vanish when you pass away. Your estate will settle your debts using your assets, says Yahoo Finance’s recent article, “What Happens to Credit Card Debt When You Die?”
The executor of your estate might have to use your assets to pay off your credit cards. And if your debts wipe out all your assets, your heirs may be left with little or no inheritance.
If you are worried about your family being stuck with your debts after you die, know your rights and work with an estate planning attorney to help protect your assets.
When a family member dies, relatives typically will not have to pay off his or her credit card debts. However, there are some exceptions. A spouse or other family member might have to pay debts, if he or she:
- Co-signed for a loan or credit card;
- Jointly owned property or a business;
- Lives in a community property state (California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin); or
- Is required by state law to pay a debt, like health care expenses, or to resolve the estate.
An authorized credit card user does not have to pay off the deceased’s debts, unless one of the conditions listed above is applicable. If it is a joint account, the surviving cardholder must keep making on-time payments to avoid late fees and negative credit reporting. If sorting out debts is causing stress, a family can check the deceased’s credit reports.
Unless you have a living trust or make other arrangements, a probate court will determine your financial affairs after you die. In most states, the executor named in the will is responsible for handling the final details of your estate.
When the deceased has credit card debt and assets, the big question is if the assets are available to the creditor. If the deceased had a life insurance policy, proceeds go to beneficiaries before any of the debts are repaid. If the deceased had assets, credit card debts and other debts, the executor must know that the beneficiaries cannot get money before the bills are paid. When dealing with these issues while settling a loved ones estate, it is crucial that you hire an expert probate attorney to guide you through this very technical process.
After paying for funeral expenses and legal fees, the first debt the estate has to pay is secured debt, like a mortgage or car loan. The estate then usually pays administrative fees, followed by unsecured debt, like credit cards. Creditors are required to submit their claims against the estate by a deadline determined by state law. If that claim meets the deadline, and the estate has sufficient assets, it must be paid. The rules vary by state, and arrangements made prior to death will impact the amount of debt that must be paid. The creditor claim laws can be very complicated. A professional probate attorney can help make sure debts get paid that need to be paid, and debts that do not have to be paid, do not get paid.
Ask an estate planning attorney about a living trust because assets held in a trust will not be subject to probate. The trust will own the assets, and they will be distributed according to the trust. These laws vary by state, so speak with a professional estate planning attorney licensed to practice in Texas.
Reference: Yahoo Finance (August 19, 2019) “What Happens to Credit Card Debt When You Die?”