What Happens To Your Credit Card Debt When You Die?

Leah Bourne
Updated: December 18, 2019

So you have a lot of credit card debt? You certainly aren’t alone on that. Ever wonder what is going to happen if and when you die and you still have credit card debt? Three out of four consumers die in debt. That’s a pretty staggering number. And debt doesn’t just disappear (yeah, even after you die, so sit on that for a second). So what happens to it? Let’s dive in…

Your “Estate” Is Responsible For It

Your “estate” includes everything you own including your car, home, investments, and anything else. That is what is used to settle a person’s debt when they die. What that ultimately means is that your assets could get depleted paying off your debts, and then your heirs are going to be left with little to no inheritance.

Are Family Members Going To be Responsible For Credit Card Debts?

For the most part, no, but there are some exceptions to be aware of.

If a spouse or a family member co-signed for a credit card or loan, if there is jointly owned property or jointly owned business, if someone lives in a community property states, or for some other reason is required by law to pay a debt (for instance to resolve the estate) then they could be responsible.

This is one of the major reasons why if you hold joint accounts you could end up stumbling across secret debt when your spouse dies, and that can be a really scary discovery because you’ll be responsible for it.

Really important to remember: Family members are able to check the deceased’s credit reports from Equifax, Experian, and TransUnion to see what debts are there.

How Exactly Do The Debts Get Paid Off Once Someone Has Died?

The process is called probate and it is the legal process of paying a deceased person’s debts, and then distributing what is left to heirs.

The probate court gets put in charge of all of this when a person dies, and a court appoints an executor to represent the interests of the deceased.

How Can You Avoid Probate?

Most people don’t like the idea of a probate court deciding what is happening with their money when they die. That’s where a living trust comes in. If you create a living trust — which owns your assets — they will get distributed per the instructions of the trust. Your assets won’t be protected from creditors, but you will have more flexibility, including allowing beneficiaries to negotiate with credit card companies down the line.

How Can You Make Sure You Don’t Pass Down Your Debts?

It is so important draw up a will or trust (you can actually do this for free via a company called Fabric). Keep in mind that debt collectors still often try to collect on debts via a deceased person’s family, even when family members aren’t required to pay those debts.

There’s a law called The Fair Debt Collection Practices Act, which prohibits debt collectors from deceptive and abusive contact with family members following a debt. It even allows survivors to file a request to stop a debt collector from contacting them.

It is so important for people to be educated around what their responsibilities are going to be following a family member’s death, along with what debts and assets exist.

Feature Image: Twenty20