How to deal with card debt after a death
By Steve Dinnen
November 4, 2015
When someone dies, the debts on credit cards, auto loans and mortgages live on for weeks or months afterward. There are right ways and wrong ways for survivors to deal with the debt left behind.
Here’s how the process generally unfolds:
After a cardholder dies, assets (for those who have assets) can go into probate, to be divided among people or creditors entitled to them by law or by the presence of a will.
“Generally, only the estate of the deceased is responsible” for his or her debts, says April Kuehnhoff, a Boston attorney with the National Consumer Law Center. Probate law governs estate and creditor claims.
A credit card company is notified of the death (there are services that search for these things) or learns of it from the deceased cardholder’s executor, relative or friend.
If you’re handling the affairs of your loved one, gather the bills, call the card companies and notify them that the account holder has died. Send a certified copy of the death certificate, the name of the loved one and the account number. Keep a copy for your records.
The card issuer has a certain amount of time to file a claim against the estate for any unpaid balances, and if there are sufficient assets, gets paid along with other creditors.
“If there isn’t enough money in the estate to cover the debt, it typically goes unpaid,” the Federal Trade Commission notes.
Collectors can’t touch some accounts, such as IRAs and 401(k)s. These pass to the beneficiaries, which is why it’s smart to keep beneficiary designations up to date. In some states, a house can be pass from one spouse to another after a death.
The legal waters governing estates and collection practices, though, quickly get muddied in community property states.
Probate or not, awash with money or not, community property state or not, a card company usually will try to collect on its debt.
If someone is jointly liable, that joint liability doesn’t go away with a death.”
— April Kuehnhoff,
a Boston attorney with the National Consumer Law Center
Here’s what you need to know to deal with card debt after a loved one dies:
1. Most debts are not transferable to anyone else.
Usually, the debts of the deceased don’t pass to a spouse or family member unless that person is legally obligated to pay them, such as in the case of jointly owned property or credit cards.
Also, if there is a co-signer on a loan or card, the issuer will turn its attention to that person if the estate does not have sufficient funds to repay a debt. When two people apply for a credit card together, each is responsible for the full amount.
“If someone is jointly liable, that joint liability doesn’t go away with a death,” says Kuehnhoff.
What if you weren’t a co-signer but an authorized user on the deceased’s card account? Authorized users have permission from the account holder to use the credit card, but are not responsible for paying the charges.
The card company may try to collect from an authorized user, however, by perhaps asking if to settle the debt in memory of primary account holder.
“You may feel like, ‘Do I really owe this money, or do I have a moral or ethical responsibility to pay this debt?’” says Mary Reed, an Austin, Texas-based author of numerous personal finance books. The simple answer, though, is that an authorized user is under no legal obligation to shoulder a loved one’s debt.
2. The laws are different in community property states.
You may feel like, ‘Do I really owe this money, or do I have a moral or ethical responsibility to pay this debt?’”
— Mary Reed,
an author of numerous personal finance books
In most states, a cardholder’s debt is typically his or hers alone. That’s not so in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin; Alaskans can opt into a community property agreement).
In community property states where there is a surviving spouse, the marital community is assumed to have responsibility for jointly acquired debt. So even if John Doe took out a credit card on his own without Mary Doe’s signature, or perhaps even without her knowledge, she still is liable.
But even this isn’t cut and dried in community property states. Ronald Morton, an attorney in Clinton, Mississippi, who specializes in elder law, says there are instances in which an asset of one spouse can be separated from that of the other. These include inheritances, for instance, or assets acquired before a marriage.
3. Many estates don’t go through probate. It’s not required, and about half of the people who die do so without leaving behind any property, money or assets.
“A lot of assets don’t have to pass through probate,” says Morton. A creditor can force probate if it thinks there are assets it can reach, however.
Morton says he has worked with families of those who died with credit card bills of more than $30,000 and, in his 20 years of law practice, he has never seen a card company spend the money to initiate probate.
If the deceased was insolvent, the credit card company is out of luck unless it can find someone who is legally liable for the debt or someone who for some reason feels compelled to pay it.
4. How to negotiate with a card company.
The Fair Debt Collection Practices Act (FDCPA) governs a debt collector’s actions. The FTC notes that the act prohibits debt collectors from contacting individuals other than the debtor to collect a debt, unless the individual is the debtor’s spouse, parent (if the debtor is a minor), guardian, executor or administrator.
Collectors cannot misrepresent anything about the debt they’re trying to collect. That means they can’t misrepresent or imply that you or any other survivor has a legal obligation to pay the estate’s debts out of your own pocket.”
— FTC October bulletin
Steve Hartnett, assistant director of education at the American Academy of Estate Planning Attorneys, says it has been his experience that creditors are willing to work with attorneys who are handling an estate.
Or, says Kuehnhoff, the credit card company might just be tempted to get on the phone to try to get money from a representative or spouse. “It’s much cheaper for a debt collector to call” than to deal with attorneys and an estate.
Bear in mind that a card issuer shouldn’t have any access to the dead cardholder’s bank records, so the company doesn’t know about his or her finances unless they ask.
When a collector calls a surviving spouse or other relative about unpaid debts of the deceased, they must abide by the FDCPA:
An October FTC bulletin notes: “Collectors cannot misrepresent anything about the debt they’re trying to collect. That means they can’t misrepresent or imply that you or any other survivor has a legal obligation to pay the estate’s debts out of your own pocket.
“It’s unlawful for them to pressure you to use your money. If the deceased left debts and no assets, it’s not your responsibility to pay. … If a debt collector contacts you, you can ask for a validation notice, dispute the debt with them, or tell them — in writing — to stop all communications with you and the estate.”
Dealing with debt after a loved one’s death often confounds survivors struggling with grief.
It’s a problem Reed sees all too often with her co-hosted financial information website, debtcollectionanswers.com. The largest number of inquiries at the website come from people concerned about debt after death.
“I live in Texas and my wife died this past December,” Dave wrote to the website in 2012. “I have been getting calls about a credit card she had. I was not aware of this credit card and my name is not on it. They keep harassing me and saying I am responsible for it. Am I responsible for this credit card?”
Because Dave lives in a community property state, he may be legally obligated to pay his wife’s credit card debt even if he had no knowledge of the credit account. The website’s authors, while noting that they are not attorneys and cannot offer legal advice, suggested that he might be able to negotiate a payment plan.
Probate and state laws — and creditor phone calls — can make a difficult time even more trying for survivors and executors. The more complicated an estate, the more reason to enlist the aid of an attorney who has skills with elder or estate law.