When Can Credit Card Debt Be Inherited?

Credit card debt does not automatically transfer to surviving family members after a cardholder passes away. The deceased person’s estate is responsible for settling any outstanding credit card balances. Assets left by the individual are used to pay off debts before inheritance is distributed. However, specific circumstances can lead to an individual becoming personally responsible for the debt. This article outlines the general rules and specific scenarios concerning credit card debt after death.

General Principles of Debt Responsibility After Death

Upon an individual’s death, financial obligations, including credit card debt, become the responsibility of their estate. An estate includes all assets and property owned by the deceased, such as bank accounts, real estate, vehicles, and personal belongings. The estate acts as a distinct legal entity responsible for resolving the deceased’s financial affairs.

Credit card debt is unsecured debt, meaning it is not tied to a specific asset like a home or vehicle. Without collateral, creditors typically have a lower repayment priority compared to secured debts, funeral expenses, or taxes. Heirs and beneficiaries are generally not personally liable for the deceased’s unsecured credit card debt, and their personal assets are protected from these claims.

Circumstances Where Individuals May Be Responsible

While the estate is generally responsible for credit card debt, certain situations can make an individual personally liable for the deceased’s balances.

Joint Account Holders

Joint account holders are equally responsible for the debt on a credit card account, regardless of who incurred the charges. If one joint account holder passes away, the survivor remains fully responsible for the entire outstanding balance.

Co-Signers

A co-signer legally agrees to be responsible for the debt if the primary borrower defaults. This obligation continues if the primary cardholder dies, meaning the co-signer must repay the debt even if they did not use the card.

Community Property States

In community property states, debts incurred by either spouse during marriage are generally considered the responsibility of both spouses, even if only one spouse’s name is on the account. If a cardholder dies in such a state, the surviving spouse may be responsible for the debt. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin, with Alaska also offering a community property option.

Authorized Users

An authorized user is permitted to use a credit card account but is not legally responsible for the debt. Authorized users are not liable for the deceased’s credit card debt, but they should immediately stop using the card upon the primary cardholder’s death to avoid potential fraud or personal liability for new charges.

Assuming Responsibility

An individual might unknowingly or knowingly assume responsibility for the debt. This can happen if a surviving family member begins making payments on the deceased’s credit card from their personal funds, rather than from the estate’s assets. Such actions could inadvertently create an obligation to continue paying the debt.

The Estate’s Role in Debt Settlement

The deceased person’s estate settles outstanding credit card debt, typically through probate. Probate is the legal procedure for validating a will, identifying assets and debts, and distributing remaining assets to heirs.

An executor, named in a will, or an administrator, appointed by a court, manages the estate during probate. Their duties include identifying assets and liabilities, notifying creditors, and paying legitimate debts from the estate’s assets. The executor is not personally liable for the deceased’s debts, provided they follow proper legal procedures and do not mishandle assets.

If the estate’s debts exceed its assets, it is considered insolvent. Unsecured debts, like credit card debt, are typically paid last in priority, after higher-priority debts such as funeral expenses, taxes, and secured debts. If an estate is insolvent, unsecured credit card debt may go unpaid, and creditors might write off the remaining balance.

Interactions with Creditors

Upon a credit card holder’s death, the executor or surviving family members should promptly notify credit card companies. This notification helps prevent further charges, stops interest from accruing, and protects the deceased’s identity from potential fraud. Creditors typically require a certified copy of the death certificate to verify the passing and close the account.

Creditors may send notices about outstanding balances to the estate or surviving family members. These communications are generally directed at the estate’s responsibility, not an individual’s personal liability. Family members should avoid using the deceased’s credit cards after death, even for seemingly legitimate expenses, as this could be considered fraud.

Surviving family members should not feel pressured by aggressive collection tactics to pay debts for which they are not personally responsible. Debt collectors are legally restricted from suggesting an individual is responsible if they are not. Unless an individual is a joint account holder, co-signer, or otherwise liable, they should not make payments from their personal funds. It is also advisable to notify at least one of the three major credit bureaus (Equifax, Experian, and TransUnion) to place a death notice on the deceased’s credit report, which helps prevent fraudulent new accounts.