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When Terry McDougall’s mother-in-law died, the Chicago-based executive coach’s family was contacted by debt collectors trying to get them to pay up to cover credit card debt left behind when she died.
They were “alarmed and worried” by the calls, which came while her family was still dealing with their grief and funeral plans, McDougall says.
Most Americans are feeling anxious about their financial situation, and 21% cited credit card debt as a cause according to a recent NextAdvisor survey. But what happens to this debt when someone dies?
McDougall says she and her husband had worked in financial services, and they “had an inkling” they weren’t responsible for paying the credit card debt and decided to do more research. Their hunch was confirmed.
Who Pays Your Credit Card Debt When You Die
Who pays for your credit card debt when you die and where the money comes from can depend on a few different factors. Estates, wills, and the state where you live all play a part.
In most states, the general answer to who pays your credit card debt when you die is your estate, which is everything you owned at the time of your death, according to Leslie Tayne, a debt-relief attorney with Tayne Law Group in New York. Another way to think of an estate is the sum of any assets, cash, and property a person leaves behind when they die.
Having an estate plan or will in place ensures your financial wishes will be carried out, including payment of debts and distribution of assets to inheritors.
You do not need to have a will or a formal estate plan in place to have an estate. Debt will still be paid out of the estate when someone dies without a will.
Having a will ensures that after debts are paid, your estate is distributed to specific individuals, or inheritors. A will can also name a specific person to be an executor over your estate, or someone whose duty it is to make sure all of the wishes laid forth in the will are executed. A probate court must accept any executor named in a will.
While credit card debt cannot be inherited by family members who survive you in death, it can impact how much of your estate is left to your inheritors, as debts will be paid out of the estate first.
Creditors will have a set amount of time after death in which they can file a claim against the estate, and this amount varies by state. Often the deceased have specifically stated in the will which debts will be paid by the estate. Otherwise,the executor can order debts to be paid, according to Tayne.
If your credit card debt is so large your estate cannot pay it out, “it basically ends there,” according to Ted Rossman, an industry analyst at CreditCards.com. In other words, the “credit card debt actually dies with that person.”
If someone dies without a will, family members can agree on who should become the executor of that estate. If a consensus cannot be reached, a probate court will decide, based on state law, who will become the executor.
There are exceptions. Some states are considered “community property” states, which means all assets acquired during marriage are considered shared by the married couple. In this case, if a spouse died and left debts unpaid, the surviving spouse would be responsible for paying them.
The states with community property law are Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin.
Other special cases arise with joint card holders and guarantors. When you get a credit card, you become the guarantor of the account – meaning you make a legal promise that the debt will be paid, according to Tayne. A common example of this is when someone has an authorized user on a credit card – the primary card holder is the guarantor and responsible for paying the debt.
Authorized users would not be obligated to pay the debt if a primary card holder, or guarantor, dies. “Nor would any heir of that card holder,” Tayne says. However, if an authorized user dies, the card holder is responsible for the debt accrued by the authorized user.
If Creditors Ask, Should You Pay?
Just because creditors call doesn’t mean you have to answer, Tayne says. If creditors contact you directly, you do not have to pay them. If they have a legitimate claim, they can file it formally with the estate lawyers. If they don’t or cannot be paid by the estate, surviving family members are not responsible to pay.
For adults whose parents die, “they’re not going to be held liable for a parent’s [credit card] debt,” Rossman says.
Even after her family learned it was not responsible for paying off the debt “there was still some bullying from collections agents,” McDougall says. “There were a lot of things we were dealing with and it wasn’t helpful to have people calling and harassing my husband and his brother.”
“What we generally tell people is unless there’s an estate, you’re not responsible,” Tayne says. “Send a death certificate and ask them to close the file.”
After doing their research the McDougall’s told the creditors “with confidence” that they knew the law and to leave them alone.