What Happens to Your Credit Card Debt After Death?
The saying goes, “You can’t take it with you.” However, when it comes to credit card debt, in many cases you can. When a credit card belongs to one person only, the debt also belongs to one person only. Whether that debt must be paid or passed along to another person after your death depends on a couple of factors.
If you die with outstanding credit card debt, the first question is whether there is enough money in your estate to pay the credit card company. State laws direct the administrator or executor of your estate to pay certain bills first. Anything left after paying creditors will be paid according to your will or in accordance with state law if you die without a will. Non-probate transfers like life insurance and payable on death accounts (especially retirement accounts and bank accounts) are not part of your estate after death. Credit card companies typically cannot reach money that is not part of the decedent’s estate.
Generally, if your estate does not have enough money to pay your credit card debt, the card company gets nothing. However, in some cases the credit card company may have some options to get paid. First, if the debt was jointly owned, the survivor is now responsible for the debt. For instance, if you and your spouse were jointly obligated on the debt, your spouse is now 100% obligated to pay. This rule does not apply to authorized users on your account.
Second, if you live in a community property state, assets that are accumulated during your marriage are considered joint property, and, in some cases, so are the debts. The states of Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin are community property states and a surviving spouse may be obligated to pay your credit card debts. Credit card debt will not pass onto other family members or friends.
Bankruptcy will discharge your credit card debts so that neither your estate nor your spouse will be affected. A dead person cannot file bankruptcy, but, once the bankruptcy is filed, the debtor can still receive a discharge after death. If you have concerns about burdening your loved ones with debt after your death, speak with an experienced attorney and discuss how the federal bankruptcy laws can help.