Money Girl answers common questions about who is responsible for credit card debt when you die.
A common question I receive about credit cards is what happens to outstanding debt when you die. Here are a couple of them:
Lauren asks: “My mom is a shopaholic with huge amounts of credit card debt on several different cards. I’m really worried that she’ll never be able to pay it all off and then I’ll be stuck with it. I don’t earn much money, so how would I deal with her credit card debt if she passes away?”
Korrena asks: “My dad is sick and has been unable to work for some time. Unfortunately he’s paying for everyday living expenses on credit cards. Am I obligated to pay off his debt after he dies?”
Having family members who are dealing with financial hardships or who are simply spending like there’s no tomorrow can be very distressing. In this episode I’ll tell you what you’re responsible for when loved ones die with credit card debt..
What Happens to Credit Card Debt When You Die?
When you die, what you leave behind is called your estate. It’s a legal entity created as a result of your death that’s made up of all your assets and debts. What happens to your estate depends on whether you die with a last will or without one, and the state where you live.
If your estate has a will, a court will first verify that it’s valid. Then the named executor in your will can handle your estate and distribute your assets. If you don’t have a will, the probate court will administer or handle the affairs of your estate for you or appoint an administrator to do so.
The executor or administrator’s job is to protect the assets of your estate—such as your home, vehicles, and investments—and pay all of your liabilities or debts—such as mortgages, credit card debt, and taxes.
After all the debts owed by your estate are paid, the administrator distributes the balance of the estate’s assets to the beneficiaries as spelled out in your will, if you have one.
By the way, if you don’t have a will, make creating one and naming a trustworthy executor a top priority! I recommend using a site like Rocket Lawyer or LegalZoom to download and customize legal forms.
What Happens If Your Estate is Broke?
But what if there are more debts than assets in the estate? If there isn’t enough money or assets to sell to pay off your debts, then your creditors are generally out of luck. If your estate is broke, then debt that’s in your name only doesn’t get passed on to your family.
However, debt that you co-signed with someone, such as a credit card, student loan, or mortgage, is a different story. Your co-signer(s) will be responsible for the full amount when you die—even if he or she never charged one penny on the credit card or lived in the mortgaged home. That’s why agreeing to co-sign for any type of credit account is a serious decision that you should never take lightly.
For instance, if your spouse dies with debt on a credit card in his or her name only or just includes you as an authorized user, you generally won’t be responsible for it. On the other hand, if you have a joint account in both your names, you will be on the hook for the full amount of outstanding debt.
When it comes to spouses, I said that you “generally” are not responsible for credit card debt that isn’t in your name. This can get messy in the 9 community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) where debts incurred during your marriage may be considered community property. That means even if only one spouse took out a loan or has credit card debt in his or her name, both spouses can be held responsible for it.
Some heirs or family members may believe that they have a moral obligation to pay off a deceased relative’s debt no matter what. That’s certainly your prerogative, but I want you to understand that someone else’s debt is generally not your legal responsibility, unless you made charges on his or her account or are a co-signer.
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