What happens to credit card debt when you die? For those with a lot of credit card debt, this is a very scary question. Having credit card debt can be a stressful and difficult experience. When it comes time to pass on from this world, the last thing loved ones want to deal with is an outstanding amount of debt on a credit card. While it can be an expensive experience, credit card debt does not necessarily die with the cardholder.
The first thing to realize is that credit card debts are considered unsecured loans. For those with a mortgage or car loan, these are considered secured debts because if the debtor were to pass on, the assets could be repossessed to make up for the remaining amount owed. However, what happens to credit card debt when you die, is a much more difficult question because nothing can be taken from those left behind to pay off the balance.
In many cases, your credit card debt will simply be written off by the creditor. In doing so, the creditor reduces its own risk of never being paid back for the loan, and writing off a credit card debt requires less work than going through a legal process to force a debtor to pay up if that debtor is no longer alive.
In situations where a credit card debt is owed to a business, that business will have to write off the debts in the event of the debtor’s death. Many businesses do not routinely take steps to collect from a customer’s estate after his or her death. If the estate does not have enough money to cover all outstanding debts, creditors usually must write them off as bad debt.
What happens to credit card debt when you die?
A situation where a business continues to go after an estate for unpaid debts is when the decedent granted the company power of attorney or POA. A POA gives a third party—the creditor—the legal authority to inspect and manage a person’s financial affairs in cases where that person becomes unable to do so himself or herself.
If a credit card debt is not written off and the debtor’s estate still does not have enough money to pay it, then the creditor can attempt to collect from any beneficiaries named in a will or protected by state laws. Protections vary based on which assets are held jointly with rights of survivorship and which assets pass under a person’s will or state intestacy statute. If the estate is insolvent, creditors will have to wait until other debts are paid before going after beneficiaries for a deceased debtor’s unpaid credit card debt.
In some cases where a creditor pursues beneficiaries of an estate, that action can force family members into difficult positions about how much money should be allocated to paying off the deceased person’s debts. Some of those who are being pursued payment of a deceased debtor’s credit card debt can choose to either pay it off or be sued themselves. If the creditor wins, however, it may not receive much money from beneficiaries if the estate is insolvent.
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Where does all the money go from my credit card?
A legal process to force a debtor to pay up if that debtor is no longer alive. If a credit card account is passed on to the next of kin, then the creditor must ask for payment from him or her within a reasonable period of time after being notified of the death. If the estate does not have enough money to pay off all creditors at once, then these funds can be used first and other creditors are temporarily left unpaid.
If this is the case, then creditors will be notified of the death and advised to file a claim with the creditor for payment within 90 days after receiving notice. The estate administrator can go back to other creditors later when there’s enough money in the account to pay them.
If no beneficiaries or heirs are found or if there are no funds left to pay creditors, then the credit card issuer will most likely write off the account and sell it to a collection agency or other lender. This means that the account is sold to a company that specializes in collecting bad debt. When the collection agency or lender accepts an account like this, it agrees to make at least a nominal effort to go after the debtor’s estate and/or beneficiaries for payment before considering write-off options.
Once any creditors are paid off by the estate administrator or the collection agency, any remaining funds in the credit card account become part of the estate and will be distributed accordingly.
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