The good news is credit card debt can’t follow you into the hereafter – I’m pretty sure there’s no debtor’s hell where you spend time for leaving debt here on Earth. The bad news is that your family may have a hard time of it when you pass.
So what happens to credit card debt when you die?
The answer isn’t a cut-and-dry matter, I’m afraid. There are several factors that you have to consider, including the following:
1.) Are you the sole signer on the account?
2.) Do you live in a community property state?
These two questions make a big difference when it comes to handling credit card debt after death.
This is one instance where the credit card company doesn’t always win and sometimes they just have to suck it up.
If the account was a sole account in the deceased person’s name only, then it is their sole responsibility and the debt is not passed on to their heirs and family members – contrary to what collectors would like to make us believe.
The debt is passed to the deceased person’s estate and the estate is responsible for paying the debt. If there is not enough money to go around for all of the debts, then the creditor’s are notified that the estate is insolvent and they have to write it off. They may still try to collect from a spouse or from the executor of the estate – telling lies that the individual is responsible when they’re not. Keep in mind that this type of behavior is their charming way of trying to collect.
Make sure you keep records of all correspondence with them and seek the help of an attorney if need be. Once it’s been made clear that you are not responsible for the debt and the estate is insolvent, the continued contact from the collection agency is harassment and you have rights. The most important thing is that you stand up for yourself and challenge them if you think they’re wrong. They’re trained to collect and sometimes that may be from those who aren’t even responsible for the debt if they can bully them enough.
Where this gets a little hairy is in community property states. Generally, any assets accumulated during marriage are considered joint property under the law of community property states. In some cases, this is true for debts as well. The other problem is that each community property state has their own variation of the rules when it comes to this, so there’s no one answer for all of them. It’s possible that if a spouse runs up credit card debt, the other could be responsible for it when the spouse passes away. You’ll want to consult your attorney when the time comes to know for sure.
On the plus side, there are certain assets that don’t pass through probate and so the executor can’t use those to pay debts. Things like your 401(k) and IRAs, which are federally protected, go to the named beneficiaries and the credit card companies can’t do anything about it.
Insurance is a little different. It passes outside the estate, so the executor can’t use it to pay bills; however, depending on the state that you live it, you may be required to use it to pay off debts, it all depends on the rules. I can tell you that Texas is a weird state. It’s a community property state, but here, if you don’t want to pay your bills, you don’t have to. Collectors can’t take you to court and they have to accept whatever payment you send them, even if its $5 a month. I don’t know if they’ll be changing the rules on that with the credit crisis, but for the time being that’s how it works. But, don’t worry, that type of behavior still affects someone’s credit report.
When it comes to your house, most states allow that to pass to a family member without any issue, but again it all depends. You’ll have to consult an attorney to know for sure, but it passes outside of the estate, so usually you don’t have to.
Prepare to be hounded!
Like I said, collectors are trained to collect and will often use all manner of disturbing tactics to try and get a payment from you. Don’t back down and don’t let them bully you. If you’re not responsible for the debt, then get an attorney to help you. If they send anything to your credit report, write a letter to the Office of the Comptroller of the Currency (OCC) and explain the situation. They’ve had to step in many a time to get a collection agency to back off.
In the end, it’s best if you do your family a favor and don’t die with a boatload of credit card debt. However, sometimes s**t happens. Have a contingency plan in place for their peace of mind. It’s hard enough to be grieving, but add them trying to deal with debt and it’s a terrible place to be in. They won’t thank you and despite the fact that they miss you terribly, they may have a few choice expletives being sent to you in the afterlife.
Has anyone had any experience with this? What kind of issues did you run into?