Does Credit Card Debt Die With You?

Credit card debt can feel hard to manage at times. But what should you do if you face the possibility of dying with outstanding credit card debt?

It’s a good idea to consider how that debt might pass to your family. On the flip side, it’s also wise to think about whether credit card debt from a spouse or loved one might pass to you when he or she dies.

Jump ahead to these sections: 

• When Credit Card Debt Can Be Forgiven
• When Credit Card Debt Can’t Be Forgiven
• What to Do When an Account Holder Dies
• What Happens if You Can’t Pay Your Deceased Loved One’s Debt?
• How to Reduce a Credit Card Debt Burden on Your Heirs

Post-planning tip: If you are the executor for a deceased loved one, handling the details of their unfinished business such as dealing with credit cards can be overwhelming without a way to organize your process. We have a post-loss checklist that will help you ensure that your loved one's family, estate, and other affairs are taken care of.

When Credit Card Debt Can Be Forgiven

Some credit card debt is forgiven at death. This means that it doesn’t become someone else’s responsibility and is absorbed by the credit card company. 

Some credit card debt may be the responsibility of a spouse or co-signer. Creditors can be persistent in their attempts to receive debt payments, so it’s a good idea to consider your options.

You want to know whether your situation merits credit card debt forgiveness or not and include considerations for that debt in your estate planning.

Here are 3 ways credit card debt can be forgiven.

1. You’re an authorized user

In this case, this doesn't mean that the debt is forgiven, it just means that the authorized user isn't the one responsible for the debt. An authorized user can spend money on a credit card but has not signed up for the full responsibility of the card. It’s wise to only let people you trust become authorized users, but these trustworthy individuals are not on the hook for your debts when you die.

2. There’s no spouse to assume the debt

This doesn’t necessarily mean it’ll be forgiven either, but that there isn't a spouse who is responsible and someone else could still be responsible. Some states consider debts acquired during marriage as “joint debts." Being single in these “community property” states may mean that there’s no one who must pay the debt. 

States without community property standards don’t require any other family members to be responsible for your credit card debt when you die. 

3. There are insufficient assets 

This is the only way the debt could technically be forgiven. One main way that credit card companies come after outstanding debts is through payment out of the estate of the deceased. However, there may not be enough assets to pay all the debts that a person has when he or she dies. 

It’s entirely possible that the credit card debt will be forgiven because no one else is responsible for that debt and there isn’t enough money to pay it off.

4. The credit card company fails to notify the estate of the debt.

There is a certain time period during the administration of an estate when creditors of the deceased are required to report the debt to the probate court.

If the credit card company fails to report the debt before the deadline runs out, the credit card company is barred from collecting the debt and has no choice but to forgive it. This is very rare, and not something to rely on. 

When Credit Card Debt Can’t Be Forgiven

On the other hand, you may meet certain conditions, and the credit card company may be able to request payment of a deceased person’s credit card debt. In these contexts, you or another member of the family may be liable for the debt.

1. You’re a joint account holder

You’re solely responsible for the credit card debt incurred if you’re a joint account holder with someone who dies. Be careful about keeping your name on a joint account with someone who incurs a lot of credit card debt.

You don’t want your grief compounded by unexpected and unwelcome extra credit card payments each month.

2. State law requires you to assume the debt of a spouse

Community property states — Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, Alaska, and Wisconsin — require you to assume your spouse’s debts when he or she dies.

Each state handles this a little differently when debt is incurred during a separation or the debt benefits only one spouse. 

3. The estate is funded to pay debts from a deceased person’s assets

Credit card debt is generally paid out of the estate of the deceased — and credit card companies know this. They will likely reach out during the process of settling an estate. This outreach is either to the executor or administrator of the estate or to any family members they can reach. 

The best way to handle this request is to connect the company with whoever is administering the estate. They will determine the next step for paying off the debt and free heirs from additional outreach from the company.

What to Do When an Account Holder Dies

Has your loved one just passed away? Here are your next steps.

If you are not the executor or administrator of the estate, collect all information you can about the deceased’s outstanding credit cards and give it all to the executor or administrator of the estate.

Don’t reach out to the credit card company directly - you won’t know if you’re liable for the debt until the estate is closed, so you don’t want to make any payments during the administration of the estate that may not have been your responsibility. 

If you are the executor or administrator of the estate, take the following steps:

Make a call: Get in touch with the credit card company after the cardholder dies. Credit card debt is the most important debt to handle promptly since the interest tends to be steeper compared to other types of debt.

Discuss delayed payments: Ask whether you can delay payments as an estate settles. The credit card company might not be able to do that, but go ahead and send a death certificate and begin filling out the paperwork to close the credit cards.

Determine which assets are available: Inform the credit card company of the death and make payments from the estate’s assets during the administration of the estate to avoid extra built-up interest.

If the estate has other debts, consult an attorney or your state’s laws before paying off the entire credit card debt - there are laws about the order in which debts are paid. 

If you are working with an attorney to administer the estate, the attorney’s office will take care of these steps for you. 

What Happens if You Can’t Pay Your Deceased Loved One’s Debt?

It can be scary to realize that you are liable for a loved one’s credit card debt, and the estate and your own finances combined can’t pay it off. 

Remember that spouses aren’t automatically liable in every state. Credit card debts taken out by your spouse won’t become your responsibility in a lot of states — if you are in one of the common-law states (as opposed to community property states). 

There are exceptions, but you may not be responsible for your spouse’s debt. One thing to keep in mind: You may have been the main heir of your spouse’s estate and the estate is liable. This could reduce your overall inheritance.

Here are some things you can do when you cannot afford to make these payments.

Ask for evidence 

One common issue is when a credit card company believes you are a joint account holder, and you believe you’re just an authorized user. Ask the card company for evidence that you signed a joint account holder agreement — the company should be able to show you.

You can also check your credit report — it will appear there. You can request a credit report for free once a year from the three main credit bureaus: Experian, TransUnion, and Equifax.

Talk to a lawyer about your rights

A lawyer can examine your particular case and tell you whether you’re liable. A lawyer may tell you something you already suspected but it can be helpful to have someone wade through the jargon-filled credit card paper trail with you.

Negotiate for a lower payment or another hardship plan

Let’s say you are liable for the credit card debt. Don’t despair. You may not be able to afford the terms where the credit card currently stands, but you can likely afford something. Credit card companies don’t advertise this, but they generally will hear you out if you explain your situation. 

Be ready to offer an amount you know you can pay, and the credit card company may arrange a plan for you to make payments on the debt. Comb through the fine print on the credit card bill or other paperwork to find the right phone number to call.

Consider taking out a personal loan

If the debt is significant, you might want to consider taking out a personal loan to pay off the credit card debt. Depending on your credit score, and the terms of the credit card, you may be able to get a personal loan at a much lower interest rate than you would pay by keeping the debt with the credit card company.

How to Reduce a Credit Card Debt Burden on Your Heirs

It is possible that, after handling someone else’s credit card debt or seeing its impact, you are worried about your own credit card debt. If you and your spouse have a joint account, for instance, they could be liable for the total bill in the case of your death.

One inexpensive option to consider is term life insurance. Term life insurance charges you a monthly fee and, in exchange, the insurance company will pay a certain amount of money to your chosen beneficiary or beneficiaries if you die. 

These policies tend to be cheaper because they only last for a certain amount of time, but some term life insurance can give you a few years of breathing room while you work on both credit card debt and any other debt you might have. Your heirs can use the benefit from the term life insurance when you die to help them make necessary payments on the debt.

The Afterlife of Credit Card Debt

Most credit card debt dies when the person who incurs the debt passes on. Tackle your own estate planning checklist to make sure you know what will happen to your own credit card debt. Joint account holders and spouses in community property states, in particular, need to prepare. Know what your financial picture would be if you lost your spouse.

Don’t be fearful if the credit card companies hold you responsible for the debt. Remember, you still have options. A hardship plan or an adjusted small payment may go a long way to help you get out from under this particular debt.