When a family member dies, you may suspect that all their debts expire as well. However, this couldn't be further from the truth. In fact, sometimes families inherit more than family heirlooms; they inherit their loved one's credit card debt.
This isn't always the case, however. When the resources are available, the estate pays credit card balances and other debts when someone passes away. This can work out rather well when someone has enough assets or savings to cover all their remaining debts when they die. But when a person dies with more debts than assets to pay them, creditors can be out of luck - and they often are.
Joint cardholders beware
The thing is, there are exceptions that could leave you on the hook for someone else's credit card balance after that person's death. The most common example is any situation where you're a joint cardholder - or someone who co-signed on the credit card account. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help keep track of expenses. In either case, you're on the hook for remaining balances as a joint cardholder - whether you're the one who made purchases with the card or not.
Unfortunately, not everyone knows which credit cards are on their own profiles.
"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.
Keep in mind, however, that joint cardholders and authorized users are not the same things. If you're only an authorized user on someone's account, then you're not liable when the cardholder dies.
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. Kern explains, "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. That's because debts will be paid from the estate before beneficiaries receive any distributions. In other words, any debts left behind when a loved one passes away can easily gobble up any of their remaining assets, leaving beneficiaries with what is left (if anything at all).
Also, note that there is a specific time period for creditors to file a claim against the estate. When an estate is probated, creditors are also prioritized. Credit card debt is unsecured, unlike a mortgage which is secured by property, or a car that is secured by the vehicle. For that reason, it's likely the credit card company will be at the back of the line when it comes to paying debts from the estate. And, like it or not, beneficiaries are often even further down the line than credit card companies.
Steps to take when a cardholder dies
When someone dies, the task of notifying financial institutions and closing credit card accounts can easily be forgotten or pushed aside. Unfortunately, plenty can go wrong if these important tasks are neglected.
For example, identity thieves may troll obituaries and online records looking for recently deceased persons they may be able to impersonate to create new accounts. Hackers may also look for ways to steal from existing accounts of the deceased, which you may not notice if you haven't notified banks and card issuers of the death quite yet.
Here are six steps you should take when a cardholder dies that may prevent these issues and plenty of others:
If you know before someone dies that you will be the personal representative or executor, you should start putting systems in place to make your job easier when the time comes. Start by organizing all the person's financial accounts. If you're a court-certified representative or surviving spouse, you can also request a copy of the deceased's credit report, which lists all accounts in their name.
Prevent further credit card use
When someone dies, his or her credit cards are no longer valid. For that reason, you should never use them or let anyone else use them - even for legitimate expenses of the deceased, such as a funeral or their final expenses. Collect all credit cards from people who may have them, including any authorized user cards, and put them in a safe place or destroy them.
Get multiple copies of the death certificate
You will likely need to get several official copies of this document to send to credit card companies and life insurance companies and for other estate purposes. While the funeral director who handled the burial or cremation of your loved one can help you get copies of the death certificate, keep in mind that these official documents come with a per-copy cost, and that cost varies by state and even the county you live in.
Notify credit card companies of the death
All credit card accounts should be closed immediately after the primary cardholder dies, and you should act quickly to avoid interest and finance charges. For joint credit cards, you should notify the credit card company that a joint cardholder has died. Also find out if any recurring charges are set up on each credit card account. If there are recurring charges such as a phone bill or utility bill automatically charged to the account each month, you'll need to cancel those right away.
When you contact each credit card company, do so by certified mail and save your receipt. Once each card issuer receives your letter, they'll ask for an official copy of the death certificate if you didn't send one in your initial letter.
Contact the three credit bureaus
In addition to all credit card companies the deceased had an account with, you'll also need to contact all three credit reporting agencies - Experian, Equifax, and TransUnion.
Request that the credit report is immediately flagged as "Deceased. Do Not Issue Credit." Flagging the credit report as "deceased" prevents criminals from opening up new credit cards or other accounts using the name and Social Security number of the deceased.
The phone numbers for the credit bureaus are:
Distribute payments to creditors
While the deceased's credit card balances should be paid from the estate, keep in mind that credit card companies are typically last on the list behind other debts such as mortgage loans. Depending on state law, you may also need to wait a specified period for bills to come in, and post a public notice of death in a newspaper before you start distributing money.
Don't let individual creditors try to jump ahead in line and get paid first - especially if there is not enough money to go around.
Before you pay anything, you should also ask the credit card company to submit a proof of claim for the estate, according to John Caleb Tabler of Lau & Associates in Pennsylvania. You can include this request with your written notification to the credit card company, or you can submit it later.
Some debt collectors are very aggressive, and they may try to prey on the survivor's emotions to try to get them to pay a debt that may not be owed. Make sure you never admit or agree to anything on the phone, and especially a payment plan.
If you need help determining the order of debts to be paid in your state or you need general legal advice while overseeing the final wishes of the deceased, you may want to seek out an estate attorney.
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