What Happens to Your Credit Card Debt After Death?
Updated
If you're on a Galaxy Fold, consider unfolding your phone or viewing it in full screen to best optimize your experience.
When a person leaves credit card debt after death, the debt is the responsibility of their estate. If the estate can't pay it off, there are only a few situations where loved ones could be held responsible, such as if there’s a cosigner or the person was married and lived in a community property state. Often, when someone dies with credit card debt that their estate can't cover, the credit card company has to write off the debt entirely.
Sorting out a loved one's financial accounts after they pass can be complicated, especially if there's debt involved. If you're managing a deceased family member's credit card debt, read this guide to find out how it works.
When a person dies with debt, their estate is legally required to pay what they owe, including credit card debt. An estate is all the money and property a person owns. The person who is in charge of managing the estate, known as either the executor or administrator, pays the outstanding credit card debt using the estate's assets during a process called probate.
For a straightforward example, let's say that a person dies with $25,000 in the bank and $5,000 owed on their credit cards. The executor of the estate would use $5,000 from that bank account to pay the credit card companies. If there were no other debts, the remaining $20,000 would go to the deceased's beneficiaries (the recipients of a deceased person's assets).
It can be more complex depending on the assets and debts a person leaves behind. Some assets, such as life insurance policies, aren't used to pay an estate's debt. These are paid directly to a beneficiary as part of the insurance contract.
If the deceased had multiple types of debt owed to different creditors, then they're typically repaid in the following order:
Some estates don't have the assets to pay off credit card debt. In that case, what happens to the debt depends on whether anyone else is legally responsible for it.
Here are the two situations where you can inherit credit card debt:
If either of the above applies to you, then you'd be legally required to pay off what's owed. For large balances, you may want to spend some time reviewing the best ways to eliminate credit card debt. This can help you find the right debt repayment method.
LEARN MORE: How to Get Out of Credit Card Debt
Authorized users on a credit card account aren't responsible for unpaid debt when the primary account holder dies. It's also worth noting that they aren't allowed to continue using the account either. Using a deceased person's credit card account, including as an authorized user, is considered credit card fraud.
If no one else is legally responsible for the credit card debt and the estate can't pay it, then the creditors will need to write it off.
Getting a deceased person's financial accounts in order is the responsibility of the estate's executor or administrator. This person is named in the will, but if there was no will, then the court will appoint someone to the position.
It can be difficult when you're responsible for managing credit card accounts of someone who has passed away. Here are a few steps to make it easier for you.
The first step is to get organized by listing all the deceased person's credit cards. It's also a good idea to list and, if possible, access their other financial accounts at this time. Since you'll need to pay credit cards from the estate, it helps to know what assets the estate has available.
Once a person dies, it's fraud to use their credit card account, including for authorized users. The only exception is a joint credit card account. If you and the deceased were joint account holders on a credit card, you can continue using it.
Other than that, make sure not to use the deceased person's credit cards at all. If there were any authorized users, tell them to destroy or return their cards tied to the account.
Contact the card issuers for all the deceased person's credit cards. You can find the phone number on the back of each card.
When you call, a representative can flag the account and explain the process for closing the credit card. Credit card companies usually require that you send them a copy of the cardholder's death certificate to close the account.
This is also when you can discuss paying off the balances on those credit cards. If you're liable for the debt, you could possibly negotiate credit card debt with the card issuer. But don't agree to pay any debt if you're not sure whether you're responsible for it.
Contact the three consumer credit bureaus: Equifax, Experian, and TransUnion. It's important that they know about the death so they can note it on the deceased person's credit file. This prevents identity theft because no one will be able to open new credit accounts in the deceased's name.
If the deceased had outstanding debt, you could be contacted by a debt collector. Even though debts are supposed to be paid by the estate in order of creditor priority, it's not unheard of for debt collectors to try cutting the line.
It's best to leave repayment to the executor of the estate. If you're the executor and you're unsure of what to do, consulting with an estate attorney can help.
Keep in mind that you don't have to talk to debt collectors. The Fair Debt Collection Practices Act gives you the right to request in writing that a debt collector stop contacting you. Once it receives your letter requesting this, the debt collector can only contact you to confirm that it will stop going forward and to tell you that it's taking specific action, such as a lawsuit.
Managing the debt of a loved one after they pass can be emotionally and financially difficult. Hopefully, knowing more about what to expect -- and what you may or may not be responsible for -- can help make the process a little easier.
RELATED: How Much Life Insurance Do You Need?
Some other questions we've answered:
It's possible to negotiate the credit card debt of a deceased person if you're legally responsible for paying the debt. That means you must be the executor or the administrator of the estate, a cosigner or joint account holder on the credit card, or a surviving spouse in a community property state.
If you're not responsible for paying the debt, then the credit card company most likely won't be able to discuss the account with you.
Credit card companies normally find out that a cardholder has died from the executor of the estate. The executor is in charge of managing the deceased person's estate and notifying the relevant credit card companies of the death.
If a credit card company isn't notified by the executor, it may learn of a cardholder's death through the credit reporting agencies. The credit reporting agencies can receive notification of a consumer's death through the executor or the Social Security Administration. When they do, they seal the consumer's credit report and place a death notice on it.
You can't inherit credit card debt, but you can be liable for someone's debt if you were a cosigner or joint account holder, or if you're a surviving spouse and you live in a community property state. Otherwise, if your loved one dies with credit card debt, their estate is responsible for paying it off. If the estate doesn't have sufficient funds to cover it, the debt will be written off.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page.