Who Pays Your Credit Card Debt When You Die?

Paying the debts of a relative who recently died might feel like a moral obligation, but whether it’s a legal one may not immediately be clear.

Dealing with a loved one’s credit card debt has a few twists to it, but in general these debts are not the responsibility of any heirs and require the credit card company to make a claim, according to several lawyers and financial experts.

In short, the debts of the deceased are the responsibility of the estate, and are first deducted from the estate’s assets before being distributed based on priority, says Michael Duffy, a lawyer in Philadelphia. However, if there are no assets or the debts exceed the assets, the outstanding debt is “written off” by the creditors, Duffy says.

There are exceptions, but relatives are protected from creditors by the federal Fair Debt Collection Practices Act, or FDCPA. The law has severe penalties for violations, and relatives who are being tracked down by creditors should contact an attorney, he suggests.

“They are already suffering the loss of a relative and they do not need unlawful harassment on top of it,” Duffy wrote in an email.

While creditors or collection agencies may call heirs, once they are given the contact information for the person handling the estate (such as a personal representative or executor), the calls to heirs must stop. In addition, lenders or collectors aren’t allowed to mislead debtors into thinking they have a legal responsibility for a debt when they don’t.

Who is Liable

A wife, for example, isn’t responsible for the debt if the husband was listed as the only user. But if she was a joint account holder, says Wayne Sanford, a credit expert, she’s liable. If the spouse was only an authorized user, however, they are not liable for the debt.

When it comes to spouses, and who owes what, the issue can get confusing in community property states — where debts incurred after the marriage may be considered community property, even if only one spouse took out the loan. In these cases, it’s best to seek guidance from your attorney.

For some people, getting involved in a parent’s debt isn’t a choice they can avoid. Kryn Westhoven of New Jersey became an authorized user on his mom’s credit cards so he could help his mom handle her affairs before she died. The decision ultimately affected a home refinance two years after she died.

The credit card companies acknowledged that Westhoven wasn’t liable for his mother’s debt, but two still reported him to credit reporting agencies for having unpaid debts. This caused his credit score to drop and left him unable to refinance his home.

Even for relatives who aren’t joint account holders or authorized users, they can still be liable if they used the deceased’s credit card. Donald A. DeLong, an attorney in Southfield, Mich., says he had a client who wasn’t a co-signer on a credit card she learned about — and used — after her husband died.

She charged about $5,000 of his funeral expenses to his credit card and the credit card company sued her for the $25,000 owed on the card, taking the position that the spouse was liable for the entire amount of debt, DeLong says. He settled with the creditor for about $4,000, and his client had to deal with litigation for about a year and paid $2,000 in legal fees.

Who Gets Paid First?

If an estate goes into probate, which is the first step in the legal process of administering the estate of a deceased person, then the court will decide which creditors get paid before any heirs will receive an inheritance, says Jeffrey A. Field, a certified financial planner who practices in California and Utah.

In general, California law requires written “notice” to creditors when probate is opened, giving the creditor four months to make a claim. But credit cards are one of the last items to be paid from an estate, Field says. Other liabilities take priority, such as taxes, mortgages, Medicaid, administration expenses, and funeral expenses.

Field recommends doing a few smart things if a relative dies with credit card debt: Cut up the cards and send them to the issuer with a statement of the date of death, and contact the three credit reporting bureaus — TransUnion, Equifax and Experian — informing them of the date of death and to close the credit profile. They should also check if there was insurance for the credit cards that would pay off the amount due at death, he says.

If the deceased has an insurance policy, the proceeds are paid directly to the beneficiaries and not to the estate, says Thomas Simeone, an attorney in Washington, D.C. That can leave the beneficiaries with a sizable amount of money while leaving the credit card bill unpaid.