Whether you have a ton of credit card debt to your name or whether your debt-to-income ratio is currently sitting at 0%, you may be wondering what happens to credit cards when you pass. You should know that, unfortunately, credit card debt does not disappear when you’re gone. Here’s what does happen to your debt when you pass.
Your account status changes from active to inactive
Normally when you pass, the funeral home notifies the Social Security Administration that you have passed away. This stops automatic payments of any Social Security benefits, but it does not prevent use of your Social Security number. Some proactive families opt to contact all three credit bureaus themselves (Experian, Equifax, and Transunion) and let the bureaus know that you have passed. (This is part of our service to probate and administration clients.) Once the bureaus are notified, your status will go from active to deceased (inactive) and this triggers a credit freeze.
A best practice is to ask for a credit report from all three bureaus. Why all three? There are some accounts that may show up on one credit report and not another— it is best to get all three so there is a full picture. Of course, getting a hold of these reports will require documentation most of the time as a basic safety measure (e.g. a copy of your death certificate may be required). It is worth the effort because having a copy of your credit report allows your family members or loved ones to compare the credit report against creditor mail, potentially avoid credit card debt late fees, and to protect against identity theft.
A close out all of the accounts
Once the credit bureau receives notice of your death, your credit card debt accounts should begin to freeze (including late fees) and eventually the credit card companies will close your account. Once your account is closed, your lender is required to send a final bill within 30 days.
Your creditor must be paid
Your estate must pay this credit card debt, which will be handled by your executor. Your creditor also has the option of notifying the court of your debt. This step is important to be aware of, because the Commissioner of Accounts who audits the executor’s activity will not sign off on inheritance to your beneficiaries until the debt is paid off. But do not mistake this rule as meaning your executor can ignore the debt; the executor is required to pay any known debt whether or not the creditor files a claim.
What happens if my estate does not have enough to pay my debts?
It is sometimes said that a creditor is the first beneficiary of the estate. In the event that your estate does not have the money to pay off every credit card debt, the creditors will be paid in priority. In this scenario, the best the creditor can hope for is a partial payment (if they are lucky, a full payment if they are the only high-priority creditor). Your executor must be careful because paying creditors in the wrong order or above their statutory amount makes them personally liable. In another worst-case scenario, the credit card company gets nothing from your estate (but your debt will be written off).
Can a creditor go after a co-signor or co-owner of a credit card account?
If there is a co-signor or co-owner of a credit card account, the credit card company can simply go after the other person on the account. This does not apply to authorized users of a credit card. For example, if you have your own credit card account but you named your child, significant other, assistant, or another person only as an authorized user, they will not be held responsible for your debt.
Contact an Estate Planning Attorney Near You
If you’re reading this because you want to be sure your family isn’t burdened by your debt, we hope we have provided some clarity. To learn more about how you can effectively plan, attend one of Promise Law’s free estate planning workshops. These workshops provide a great foundation of information that everyone needs to make sound planning decisions. Moreover, if you attend a workshop, you also get a complimentary one-on-one consultation.