What happens to card debt when someone dies
If family births are the most joyous occasions for almost all of us, family deaths are the polar opposite. Especially if they involve a spouse, parent or grandparent, they're times of immense sadness and trauma. The last thing you want to think about in the midst of such grief is sorting out the deceased's financial affairs. However, all too soon, the pressure from creditors to do this is going to become intense, and someone must take over the reins.
Who takes the reins?
When people die, their assets (cash, real property, investments, savings, car and so on) become the property of their estates. And each estate is obliged to pay all debts, costs, taxes and other liabilities due before it distributes what's left over, according to the deceased's wishes, to the beneficiary or beneficiaries. But who manages all this?
Where there's a will, there's generally an easy way. When writing wills, it's usual to appoint an executor or executors (in some states, these are called "personal representatives") to handle all the tasks associated with the estate. Under a principle called "fiduciary duty," executors are legally obliged to act with total and transparent good faith and honesty while carrying out the deceased's wishes.
If no will was written, your state's probate court can appoint an administrator, who has the same powers as an executor. Different states have different rules, but each has a hierarchy of people who are asked to take on the role. Top of the list is generally the surviving spouse, if any, followed by the deceased's children. At the bottom, it's often little more than anyone else who's competent and willing to do the job. Nobody can be forced to be an executor or administrator unless they want to be.
There are two key things to understand about the credit card -- and most other -- debts of someone who's passed on:
- They don't die with him or her, and usually have to be paid.
- Nobody can normally inherit them.
We've already established that it's the estate's job to settle debts. But what happens when it doesn't have enough assets to cover its liabilities? Generally speaking, lenders have to write off their losses and move on, according to NOLO, a legal website. With a few fairly rare exceptions, you're on the hook for the deceased's debts to exactly the same extent after death as you were when he or she was still alive. So if you opened a joint account -- or co-signed a credit agreement -- with your late relative or friend, you're likely still be to liable, but otherwise there's a high probability you're in the clear. For the avoidance of doubt: an authorized user on a credit card account wouldn't normally be liable, but a joint account holder would.
There are four main exceptions to the general debt liability rule that may apply if you:
- Are the surviving spouse in a state that has community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin -- and in some cases Alaska.
- Are the surviving spouse, and your state has a law that requires widows or widowers to retain liability for particular types of debt. This might affect Medicaid and other health care costs, but never credit cards and the like.
- Are the adult child of a late parent who couldn't when alive pay for his or her long-term care. "Filial responsibility" laws exist in 29 or 30 states, but have rarely been used. If you're very unlucky, you could be liable for your late parent's unpaid care bill.
- Are legally responsible for managing the estate (are the executor/personal representative or administrator), and have failed to act lawfully when fulfilling certain of your duties.
Absent those, it's highly likely that the general rule applies: You are not liable for debts owed by other people -- dead or alive. Some unscrupulous creditors -- especially rogue collection agencies -- may try to persuade you the opposite is true. Tell them, politely, to get lost.
When collectors call
It's fine to tell collectors to get lost if they're lying to you or trying to emotionally blackmail you into paying a debt that isn't yours. But they're legally entitled to call you just one time to find out who's responsible for settling the estate. You should provide them with the name, phone number and address of the executor/personal representative or administrator.
Unless you are that person or the deceased's spouse (or, in the most tragic cases of all, the parent of a deceased minor child), the Fair Debt Collection Practices Act bars collectors and creditors from discussing with you or anyone else any details of any of the estate's debts. The Federal Trade Commission says you should report breaches of this law to your state attorney general through naag.org.
Some practical tips
Soon after a loved one's departure, few of us are capable of focusing on financial matters. But executors and administrators can take some steps that might ultimately help those who stand to benefit from the estate:
- Negotiate with creditors. Some may settle for significantly less than the full amount owed.
- Find out whether credit card and other accounts came with optional insurance that settles balances on death.
- Notify credit card companies about the death, including the date on which it occurred. Cut up each card and enclose it with the letter to the relevant issuer.
- Also inform the Big Three credit bureaus Equifax, Experian and TransUnion of the death and its date.
Nothing can make up for the loss that a bereavement brings. But understanding where you stand financially can relieve some unnecessary stress at a most difficult time.
Published 07/07/14 (Modified 07/16/14)