Losing a loved one leaves the family in a lot of grief. Things like closing out the accounts, settling any outstanding bills, and dealing with insurance claims can also take up a lot of time.
The question that often comes to mind for families is whether they are liable for the deceased’s credit card debt. Many people think that those balances will just go to relatives, but that’s not typically the case.
Here’s what typically happens when someone dies with unpaid credit card debt.
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Credit Card Debt Usually Becomes Part of the Estate
In the majority of situations, if someone has a pretty high credit card balance, it will be the estate’s responsibility, not the surviving family members.
An estate consists of:
- Bank accounts
- Real estate
- Investments
- Vehicles
- Personal property
The executor or administrator of the estate will be responsible for determining if there are any outstanding debts in the estate and will pay any valid debts before distributing the resources to beneficiaries during the probate process.
What Happens If the Credit Card Debt Isn’t Paid?
Usually, creditors do not ask to be paid by family members if the balance is not paid immediately after death.
Creditors Can File Claims During Probate
Typically, the credit card companies will make claims during the probate proceedings.
The estate’s executor uses its assets to pay any debts before the remaining assets are distributed to the beneficiaries.
If one delays payment of the debt, it is not removed; it will be dealt with in the legal estate administration process.
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Debt Collectors May Contact the Estate
The executor or estate administrator may have to communicate with the creditors throughout the probate process.
Each state has deadlines and procedures governing creditor claims, so executors should carefully check each claim and confirm that it is valid before paying it.
Insolvent Estates May Leave Debt Unpaid
When the value of the estate falls short of all of its debts, it is an insolvent estate.
Debt from credit cards is typically unsecured and is often one of the last things that people pay off, such as:
- Funeral and administrative costs
- Certain taxes
- Secured loans
When there are no funds left in your estate, any unsecured credit card debts may be discharged, leaving the creditors with only a portion (or no portion) of the debt owed.
When Family Members Could Be Responsible
While most family members are not personally responsible, there are several exceptions.
If the surviving person is:
- A joint account holder on the credit card.
- A co-signer on the debt.
- A spouse living in a community property state, where certain marital debts may be shared under state law.
Normally, an adult child, sibling, or other relative will not be held liable for other people’s credit card debt.
What Families Should Do If the Estate Has Significant Debt
The executor should first create a detailed list of the estate’s assets and liabilities if the person who has passed away had a significant amount of debt.
This helps determine:
- Whether the estate is solvent.
- Which creditors must be paid?
- Whether beneficiaries are likely to receive an inheritance.
In certain cases, a creditor might accept a compromise, but in other cases calls for a compromise in other circumstances, particularly when there may be restricted assets inside the estate.
If an estate is complicated, it’s also important for families to talk to an estate attorney or financial advisor to make sure that debts are settled properly, as required by State law.
Don’t Rush to Pay Before Understanding Your Rights
A common error families make is paying their deceased relative’s credit card bills before they determine if their relatives are legally liable.
You don’t want to be responsible for the debt unless you are a joint account holder or if you are a cosigner or legally liable for the debt. Executors should adhere to the probate process, verify any creditor claims, and use the estate funds, not personal funds, to pay any valid debts when possible.
The Bottom Line
The payment of a person’s credit card debt is typically made through the estate of the person who has passed away and not by any surviving family member. Usually, creditors are paid first, if there are sufficient assets. Any unsecured debt can just be forgotten if the estate isn’t adequately funded.
Sometimes, knowing when you are and aren’t legally liable for probate can help relieve some of the financial strain that can occur during an already difficult situation.
Planning for the future starts with understanding your financial rights. Explore The West News for the latest updates on personal finance, estate planning, Social Security, taxes, and consumer advice to help you make informed financial decisions for yourself and your family.
