In most cases when a person passes away their estate or in other words, their assets that are under the deceased person’s name are responsible for paying off any credit card debt or any other type of debts that person may owe. But there are some instances where a person will be on the hook for paying off credit card debt. Some instances include having a joint account with the deceased or being in a community property state.
Who Pays Off my Credit Card When I Die?
When you die your estate will be the one to pay off your credit card debt. Your estate is essentially anything you owned at the time of your death. Any assets and bank accounts that are under your name are collectively called your estate.
For example, at the time of your death you end up owing 5,000 dollars and your collective estate is 15,000 dollars, your executor (person named in the deceased will) of your estate will be required to pay off your remaining credit card balance with your own money. In short, this process is called probate.
On many occasions, relatives of the deceased person are required to notify any lenders which include credit card companies. The CARD ACT of 2009 states that card issues must notify the estate executor if any balance is due. This law also prevents issuers from adding any more fees or penalties while the estate is being settled.
If your estate does not cover your credit card balances, the credit card issuer will be out of luck. Unlike mortgages and car loans, credit card debt is not secured. Meaning that any credit card debt that is not paid will have to be written as a loss.
The only person who is not legally required to pay of credit card debt from a deceased person is the authorized user. The reason for that is because the authorized user only agreed to use the credit card.
Key Exceptions Where You Might Have to Pay the Debt
Although in normal circumstances you are not responsible for paying off credit card debt there are exceptions, which include the following:
- Your deceased person’s spouse and state law require you to pay for the debt.
- You were legally responsible for administering the estate and did not comply with certain state probate laws.
- You co-signed a credit card with the deceased person. Which would make you responsible for the credit card debt on only that card.
- You had a joint credit card account with the deceased person. The only positive from this is that you would only be required to pay off the balance on only the cards you have a joint account with.
- You’re the surviving spouse and live in a community property state. Community property states are Alaska, Louisiana, Idaho, Arizona, California, Nevada, New Mexico, Wisconsin, Washington, Oklahoma, and Texas. This only counts for community property but excludes separate property the surviving spouse may have had.
The only person who is not legally required to pay of credit card debt from a deceased person is the authorized user. The reason for that is because the authorized user only agreed to use the credit card.
How Will Credit Card Companies Contact You?
Handling credit card debt of a deceased loved one is one of the most difficult situations any person can face. One thing to remember is that laws are protecting you from being harassed by credit card companies.
The federal Fair Debt Collecting Practices Act or FDCPA for short is an act that protects you from being misled by debt collectors. In no circumstance can a debt collector lie to you and spread false information concerning the debt of your deceased loved one.
In the event, a debt collector does call remember to tell them how you would like to be contacted in the future to prevent any further confusion. Two things to also consider. Number one make sure to remember that legally, debt collectors are required to provide certain information to you. Number two is to make sure the debt collector is legitimate before giving out your personal information.
How Can You Avoid Probate?
One of the best ways to avoid probate is by having a living trust because assets held in a trust will not be subjected to probate. The reason for that is because when you die all your assets will be transferred to your trust. Even though this may not shield your estate, it does give you more flexibility. Having a trust can help to eliminate a lot of debt by being able to negotiate with credit card lenders. Meaning that you have all the control rather than it being the other way around.
Conclusion
Having a trust is one of the best ways to prevent your spouse or family members from going into probate. Even though under normal circumstances you won’t have to pay any outstanding debts for your deceased loved ones having a plan to mitigate the hassle is the best thing someone can do.