Dealing with the death of a loved one is difficult enough without the added pressure of creditors calling you to collect on the deceased person’s debts – most frequently credit card debts. But can a bank collect a credit card debt owed by your deceased loved one?
The answer depends on a range of factors, from whether it was a joint account to where the deceased person lived. Here are some of the key factors.
1. Are family, friends or heirs responsible for debts?
When you take out a credit card in your name, you’re agreeing to repay whatever you borrow. Whether you’re alive or dead, that obligation doesn’t generally extend to your family or friends. In short, while your heirs can inherit your worldly possessions, they don’t inherit your credit card balances and they don’t have to pay them. Exception? If someone else was jointly liable on the debt with you. Joint account holders are generally fully responsible for the entire debt, even if all the charges were made by only one of them.
Additionally, Texas is a community property state. That means in most instances both spouses are responsible for debts of the other, even if they did not sign the original application. But there are many fine points that may result in one spouse not being liable. It is important to review the specifics with your attorney.
The fact that your heirs aren’t responsible for your debts, however, doesn’t mean your creditors won’t try to collect from them. Some creditors will make an initial effort to collect and depending on the estate and the size of the debt, write off the debt if it appears it will not be readily collectible. But those debts are also many times sold to collection agencies that may try to collect on them using sometimes questionable tactics. If you are receiving claims for payment, you would do well to consult with your attorney.
2. Direct creditors to the executor
While heirs or family may not be responsible for your debts when you die, that doesn’t mean they just go away. Instead, the obligation transfers from you to your estate. When a person dies, their estate is born. That estate will have someone, known as the executor or administrator, who will be designated by the will and affirmed by a court to handle all financial issues of the deceased, including their debts. If you’re not in charge of an estate and get a debt collection request, direct the caller to the executor, then tell the caller you don’t want to be contacted about that debt again.
3. Notify creditors and credit bureaus
The executor of the estate should notify creditors as soon as possible of the death. In Texas the executor may be required to notify certain creditors and there may be benefits to be gained by providing such notice to all creditors. They should also notify the big three credit reporting agencies – Experian, Equifax and TransUnion – and request the account be flagged with the statement “Deceased: Do not issue credit.” This will help prevent an all-too-common problem: identity theft of the dead. The executor should also request a copy of the deceased’s credit report. This is the best way to find out exactly what debts were outstanding.
The Social Security Administration should also be notified, particularly if the decedent was receiving benefits from it. Payment of benefits will need to be stopped and some payments already received may need to be returned.
4. Find out who’s responsible
As mentioned above, people who request credit together are equally responsible for the entire debt. The same is true with a co-signer, who essentially guarantees the debt of the borrower. If the borrower dies, the co-signer becomes liable.
Authorized signers or additional cardholders on credit card accounts, however, aren’t liable. They didn’t originally apply for the credit; they were just allowed to “piggyback” on the account of the one who did. If that person dies, the authorized signers aren’t generally on the hook.
5. Stop using credit accounts
If you are an authorized user on a credit card account, don’t continue to use the card after the main cardholder dies. Since you’re not liable for the debt, this could be considered fraud. A surviving spouse can ask for a card to be issued in his or her own name. It will most likely be a new card application, based on the survivor’s credit history, income, etc.
6. Don’t split up all the belongings yet
It’s natural to think that you should immediately start giving away the decedent’s property, particularly personal items. Grandma’s antiques and jewelry away. But it’s a good idea to wait. Only after the estate has settled its debts should the assets be distributed. Distribute stuff beforehand, and should the estate not have enough to pay its debts, the heirs could become responsible for the debt.
7. Ask creditors for help
If a surviving spouse is a joint account holder on the deceased’s credit card and is having trouble paying the bills, that person may be able to work something out with creditors. Ask for options to give you time to get organized.
8. Common law property states are different
If you live in a common law property state (doesn’t follow community property law) the rules are different regarding the responsibility of surviving spouses. Unless both spouses applied for credit together, the non-applying spouse who survives the applying spouse may not be liable for the resulting debts. But if you are in such a state, you should consult your attorney about just what your liability is.
9. If an estate is insolvent, the debtors lose
Sometimes the estate has more debts than assets to pay them. If no one else can be found responsible for the debt, creditors will be forced to write it off.
10. When in doubt, contact an attorney
This stuff can get complicated, especially when community property law is in place. Contact your attorney to get help.