What Happens to Credit Card Debt When You Die?

You’ve done all your homework and made sure your assets are going to be distributed to your heirs, but what about your credit card debt? And what happens when you have more debts than assets? Get the lowdown on how the courts resolve your debt(s) when you pass away.

If you are like thousands of Americans, you have credit card debt—and you may wonder what is going to happen to the debt upon your passing. Basically, there are two main elements that are going to determine who is responsible for your credit card debt after you pass away: whose name(s) are on the account and where you lived.

Whose name is on the account?

If the card is solely in your name, your estate is going to be accountable for the debt. While the estate undergoes probate, the administrator or executor of the estate is going to determine the assets and debts of the estate and settle debts in the order that state law necessitates.

If assets remain following that, they are going to be distributed to heirs in accordance with your will or, should you not have a will, state law. Don’t forget that not all assets undergo probate.

Nevertheless, things such as insurance revenue, 401(k)s and IRAs, typically go to beneficiaries without being considered as assets in the estate.

As a result, beneficiaries receive those without regard to debts, and an administrator or executor of an estate cannot use them to settle credit card debt(s). If you share your credit card account with somebody else, i.e., somebody else also signed the credit card application, that individual could be held accountable for the debt; if there is another individual listed on the account but just as an approved user, they are not going to be responsible for the debt. An approved user is typically someone that can use the card but did not sign the application and does not pay the bills.

What occurs when the estate’s assets do not cover the debt?

When your estate is exclusively responsible for the debt and there are not enough funds in your estate to cover it, the debt concludes there. The credit card company writes it off, and neither your heirs or anybody else can be held accountable for it.

What about states that are community property states?

One reservation for all the aforementioned information comes in supposed “community property” states, in which assets, and occasionally debts, accumulated during a marriage are deemed marital or jointly owned property. States that have community property regulations are Alaska, California, Arizona, Louisiana, Idaho, Texas, Nevada, New Mexico, and Washington, but conditions differ regarding debts, so make sure to inform yourself of your particular state law on the matter.

Source:

1. What happens to Credit Card Debt When You Die? LegalZoom. (n.d.). Retrieved April 25, 2023, from https://www.legalzoom.com/articles/what-happens-to-credit-card-debt-when-you-die

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