What Happens To Credit Card Debt When You Die?

by Sally Herigstad

After the death of a family member, many spouses, ex-spouses and even adult children find themselves with a surprise "inheritance" — leftover credit card debt.

When someone dies, the estate pays credit-card balances and other debts. If a person dies with more debts than assets to pay them, creditors can be out of luck — and they often are.

But there are exceptions that could leave the survivors on the hook for someone else's credit-card balance after that person's death.

Joint cardholders beware

If you're a joint cardholder, meaning you co-signed for the credit card, you're liable for the debt. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help keep track of expenses.

If you're only an authorized user, you're not liable when the cardholder dies. If you co-signed as a joint cardholder, then you just got a new credit card debt.

"Sometimes, people can be on a credit card and not even know it," says Pennsylvania attorney Linda A. Kerns. "Maybe when they filled out the credit card applications, (the joint cardholder) didn't even tell them." These accounts could show up years later, at the time of a death or divorce.

"I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event," says Kerns.

Who got custody of the credit card?

It happens too often: One spouse agrees to pay off a joint card as part of a divorce settlement. But if the ex doesn't do it or dies before the debt is paid and your name is still on the card, the credit card company may come looking for you.

Furthermore, according to Texas attorney Glen Ayers, if you live in a community property state, you'd better hope you didn't receive community property in the divorce. "That divorce judgment does not bind the credit card company. It's going to chase you," he says.

In a community property state, the rules are different during life and at death. "In community states such as Texas, any community property that passes to my wife as well as any specific bequest to my children would be liable on my death," says Ayers.

If a wife, for example, has no contractual obligation to the community property, her separate property can't be touched, Ayers adds. However, community property can be used to pay off debts. Community debt laws are complex and vary even among community property states, so talk to a lawyer in your state about your situation.

Using a card after death could spell trouble

Continuing to use a credit card as an authorized user after the cardholder's death could put you in big trouble. "That's got criminal implications," says Ayers. "If somebody wanted to make a case of that, is that any different than picking up a card on the street?"

The same goes for using the card as an authorized user when you know the debt won't be paid. For example, says Kern, "You'd be committing fraud if you knew a parent was near death and the estate didn't have money and you used it knowing it wouldn't be paid off."

When the estate loses, beneficiaries lose

Even if you are not held personally liable for the debt on a credit card, you'll feel the effects of it if you're a beneficiary of the estate. Debts will be paid from the estate before beneficiaries receive any distributions.

There is a specific time period for creditors to file a claim against the estate. When an estate is probated, creditors are prioritized. Credit card debt is unsecured, unlike a mortgage, which is secured by property, or a car that is secured by the vehicle. So it's likely the credit card company will be at the back of the line when it comes to paying debts from the estate.

That doesn't mean the credit card company won't try to recoup the debt from family members, so don't fall for it if you know you're not liable. Taking some pre-emptive action, such as notifying credit card companies that the cardholder has died, will help prevent them from contacting you.

Before any debts are paid out of an estate, including credit card debt, consult your attorney.

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