What happens to credit card debt after death

What happens to credit card debt after death

You can't take it with you, but do credit card bills follow you into the grave? Does that debt die with you? Or can it come back to haunt those left behind?
There's no one-size-fits-all answer. A number of factors, including where you live and who applied for the card, can radically alter the situation.
Here's the simple part: If the card was yours alone, with no joint account holders, the debt is yours alone, too.

When you die, your estate is responsible for paying off the balance. If the estate goes through probate, your administrator or executor will look at your assets and debts and, guided by law, determine in what order bills should be paid. Remaining assets will be distributed to heirs by following your will (if you have one), or state law (if you don't).

Sometimes, the credit card company loses
If the assets don't cover the bills? "If there isn't enough money, credit card companies would have to, as my students say, 'suck it up,' " says Doug Rendleman, law professor at Washington and Lee University.
Creditors are notified that the estate is insolvent. They write off the bills, and often that's the end of it. Children, friends, or relatives can't inherit debt. A card company can't legally force someone else to pay.
If there is enough money, the Credit CARD Act of 2009 requires the executor of an estate to be informed of the amount quickly, and requires credit card issuers to stop tacking on fees and penalties during the time the estate is being settled. That portion of the law went into effect in February 2010.
One situation in which someone else could end up shouldering your credit bill: If you share the account. If a spouse, family member, or business partner signed the card application as a co-signer (joint account holder), then that person could be liable for the balance on that card, along with (or instead of) the estate.
If that second cardholder is merely an authorized user (didn't sign the application, isn't liable for bills, and merely has charging privileges), then he or she isn't responsible.

Community property states The question of who can inherit debt "gets a little more complicated in community property states," says Michael R. Kerr, legal counsel and legislative director for the Uniform Law Commission, which drafts the Uniform Commerical Code and the Uniform Probate Code. Generally, assets accumulated during a marriage are considered joint property in community property states. But, in some cases, so are debts.
States that employ community property laws: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Not all community property states play by the same rules. "All states have variations," says Rendleman.
So if your husband or wife has a separate card account and runs up debt, at death "it's possible that debt could pass to the spouse," says Kerr. But it isn't always cut and dried.  "I think there is case law going either way," he says.
Bottom line: In community property states, "you have to ask more questions," says Kerr.

What about the assets?Not all assets go through probate. Some items, such as IRAs, 401(k)s, brokerage accounts, and insurance, typically pass to whomever you've named as a beneficiary, which is one good reason to keep those designations up to date. In many cases, those assets aren't considered part of the estate.
Since these assets don't go through probate, the executor can't use them to pay estate bills. So can the credit card company go after the person who inherits?
With employer-based pension plan accounts, such as 401(k)s, the answer is no, says Bruce Wolk, co-author of "Pension and Employee Benefit Law" and law professor at the University of California-Davis. Since the plans are protected by federal law, that won't vary by state.
Insurance also usually passes outside the estate, and in most cases it's also safe from creditors, says John H. Langbein, Wolk's co-author and professor of trust law at Yale Law School. With IRAs, "it's a state-by-state question," Wolk says. "Although many states exempt IRAs from that kind of claim." Likewise, with other assets, such as a brokerage account or bank account, the answer may vary from state to state.
Many states allow a house to pass from one spouse to another after a death without letting creditors intervene; many have laws that protect the family home from creditors.
The question can get more complicated if the house is in just one name, or if it's passing to a child, other family member or friend. If the home becomes an issue (or you're just worried that it could), talk with an attorney to find out exactly what a creditor can and can't do.