Updated March 27, 2012

What Happens to Credit Card Debt When You Die?


Most people have an idea of the events that will happen when someone passes away. An autopsy may be performed, the body is cremated or prepared for burial, and memorial services occur. Then, the reading of the will happens and the person’s estate is divided up as outlined by the will.

But many people are uncertain about what will happen to their debts when they pass away. If the debt is collateralized (i.e. if a car, house or other item of worth is tied to the loan), the assumption is that the collateral will be sold to pay off the debt. When it comes to unsecured debt like credit cards, however, the situation is less clear.

Thankfully, there are tasks we can do now to help make it easier for our loved ones to settle our financial accounts after we die.

Who is responsible?

The person responsible for the remaining balance after the death of a cardholder depends on the details of the account. If there is a joint account holder, the surviving cardholder will inherit responsibility. However, if someone is simply an authorized user, they do not take on legal responsibility for the debt. If the account was a single account, then legal responsibility dies with the estate.

One exception to this rule is when the account is held in a “community property” state (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington). In these states, assets and debts that build up during a marriage may be considered joint property. Community property laws vary with each state, so if you have credit card accounts in one of these states, you will want to research state law to see what will happen to outstanding credit card debt at death.

How to protect your family

When a person who passes away has debt, their estate is responsible for paying it off. As determined by law, the debts will be paid in a certain order. Once those debts are paid, the remaining assets will get distributed as indicated in the will. If there are not enough funds to pay off credit card debt, then the credit card companies will write off the bills, as they cannot force someone else to pay that debt.

Most of us would like to leave money for our loved ones when we pass away. One way to help ensure our survivors get money (instead of it all going toward debts we have accumulated) is to allocate some of our assets to 401Ks, insurance, IRAs and brokerage accounts. These accounts typically aren’t considered part of the estate and will go directly to the person who is named as the beneficiary instead of being used to pay off debts.

How to reduce stress

Quite a few items need to be taken care of when a person passes away. Having to dig through records to locate information for credit card accounts is one of the last things that your loved ones will want to do.

You can help eliminate that hassle and headache by maintaining a list of credit cards for the executor of your estate. It will be his or her responsibility to inform credit card companies of your death to stop any fees from accruing. Show them where you keep the list and where you file away your most current bills so they can easily locate them when necessary. This will save time and prevent unnecessary funds from going to credit card companies instead of your family.

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