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Wednesday, February 8, 2012

What Happens to Credit Card Debt When You Die?

Matt Smolsky, The Writers Network


You certainly can't take it with you, so what happens to credit card debt when you die? Leaving even a small amount of debt can be troubling for your surviving family members, but knowing a little bit more about how credit card debt works can help you manage this issue early on.

Sole Accountholder

If you're the only cardholder and your name alone is on the account, the debt is yours and no one else's. However, when you die, your estate is takes on the responsibility of paying the balance of the debt. When an estate goes through probate, the executor of your estate pays your bills. Law guides who gets paid what and when. Then, the rest of the estate is paid to heirs.

IRAs, 401(k)s, brokerage accounts and insurance are normally outside of probate, meaning they pass directly to the beneficiary (keep that designation up to date to keep them out of probate). Individual state law can vary, so consult your attorney. Most of the time, homes pass directly to the heir, but again state laws differ so consult your attorney.

In the case of an insolvent estate, they write off bills. Family and friends can't inherit debt.

If there is enough money, the executor must notify the credit card company. Upon notification, the credit card company must stop assessing fees and late charges. This is to protect the estate from excessive charges.

Joint Accountholders

Joint accountholders (a spouse, child, sibling, other family member, or business partner) may be liable for the entire balance on the card along with the estate. A joint accountholder would be someone who signed the application as a co-signer with you.

If someone else is simply an authorized user with charging privileges (didn't sign the application, simply received a card), then they aren't responsible for the debt.

Community Property Law

In some states, debts may be considered community property. Community property states are: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

It's possible that in these states debt incurred by one spouse may pass to the other upon death.

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