At
death, who inherits credit card debt?
By Sally Herigstad • Bankrate.com
Highlights
There's a big difference between being an
authorized user and a co-signer.
If your ex takes custody of a joint credit card,
it pays to check your credit.
Credit card debt is unsecured, so collectors
could end up out of luck.
After the death of a family member,
many spouses, ex-spouses and even adult children find themselves with a
surprise "inheritance" -- leftover credit card debt.
When someone dies, the estate pays
credit card balances and other debts. If a person dies with more debts than
assets to pay them, creditors can be out of luck -- and they often are. But
there are exceptions that could leave you on the hook for someone else's credit
card balance after that person's death.
Joint cardholders beware
If you're a joint cardholder,
meaning you co-signed for the credit card, you're liable for the debt. Parents
sometimes do this for children who are just starting out, or adult children
will co-sign with their elderly parents, perhaps to help
If you're only an authorized user,
you're not liable when the cardholder dies. If you co-signed as a joint
cardholder, then you just got a new credit card debt. "Sometimes, people
can be on a credit card and not even know it," says Pennsylvania attorney
Linda A. Kerns. "Maybe when they filled out the credit card applications,
(the joint cardholder) didn't even tell them." These accounts could show
up years later, at the time of a death or divorce. "I tell people to check
their credit card reports regularly. Resolve it before a death
or divorce or traumatic event," says Kerns.
Who got custody of the credit card?
It happens too often: One spouse
agrees to pay off a joint card as part of a divorce settlement. But if the ex
doesn't do it or dies before the debt is paid and your name is still on the
card, the credit card company may come looking for you.
Furthermore, according to Texas
attorney Glen Ayers, if you live in a community property state, you'd better
hope you didn't receive community property in the divorce. "That divorce
judgment does not bind the credit card company. It's going to chase you,"
he says.
In a community property state, the
rules are different during life and at death. "In community states such as
Texas, any community property that passes to my wife as well as any specific
bequest to my children would be liable on my death," says Ayers.
If a wife, for example, has no
contractual obligation to the community property, her separate property can't
be touched, Ayers adds. However, community property can be used to pay off
debts. Community debt laws are complex and vary even among community property
states, so talk to a lawyer in your state about your situation.
Using a card after death could spell trouble
Continuing to use a credit card as
an authorized user after the cardholder's death could put you in big trouble.
"That's got criminal implications," says Ayers. "If somebody
wanted to make a case of that, is that any different than picking up a card on
the street?"
The same goes for using the card as
an authorized user when you know the debt won't be paid. For example, says
Kern, "You'd be committing fraud if you knew a parent was near death and
the estate didn't have money and you used it knowing it wouldn't be paid
off."
When the estate loses, beneficiaries lose
Even if you are not held personally
liable for the debt on a credit card, you'll feel the effects of it if you're a
beneficiary of the estate. Debts will be paid from the estate before
beneficiaries receive any distributions.
There is a specific time period for
creditors to file a claim against the estate. When an estate is probated,
creditors are prioritized. Credit card debt is unsecured, unlike a mortgage,
which is secured by property, or a car that is secured by the vehicle. So it's
likely the credit card company will be at the back of the line when it comes to
paying debts from the estate.
That doesn't mean the credit card
company won't try to recoup the debt from family members, so don't fall for it
if you know you're not liable. Taking some pre-emptive action, such as
notifying credit card companies that the cardholder has died, will help prevent
them from contacting you.
Before any debts are paid out of an
estate, including credit card debt, consult your attorney.
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