Death is one of those annoying certainties in life. With credit card debts, you may have additional fear about how the debts are handled: Is your family responsible for repaying the debt, or are these loans automatically forgiven when someone dies?
The simplest answer is that credit card debt is the borrower’s responsibility – nobody else opening it, especially when they borrow separately. But real-life situations are more complicated. What’s more, lenders can cause confusion and panic when they tell friends and family to use their own money to pay off someone else’s debts.
Your Estate Pays debts
Your property is everything you own when you die, such as money in bank accounts, real estate, and other assets. After death, your property will be settled, meaning that everyone you owe has the right to get paid from your property, and then any remaining assets will be transferred to your heirs.
Lenders have a limited amount of time to collect on debts. Your personal representative (or executor) must be creditors of your passing knowledge. It can be done through a published announcement and through communication directly to lenders. The debts are then settled until all debts have been settled, or your estate no longer has any money.
- Not Enough Assets? If your estate does not have enough assets to cover all your debts, lenders are out of luck. For example, if you have $ 10,000 in debt and your only asset is $ 2,000 in the bank, your lenders will write off unpaid balance and take a loss.
- Real estate can be sold: Your estate includes things like your house, cars, jewelry and much more. The credits that go to your estate are available to pay your creditors. Before distributing the assets to the heirs (whether or not according to the instructions in a will or state law), your personal representative is supposed to ensure that all creditors’ claims are settled. If there is not enough money available to pay bills, the estate may need to sell something to generate cash.
- Is House Fair Game? It is possible that an estate will have to sell the property to pay credit card bills and other debts. However, state law determines what actions are available to creditors. In many cases, local courts decide whether the estate needs to sell a house or if liens can be placed on the house.
- Have the heirs paid? The estate pays off for a property being passed on to heirs. It can be confusing if someone thinks of a particular asset the asset is not yet inheriting, and it can never go to the intended recipient if the device is to be sold. Unfortunately, for heirs, it feels like they are paying off the debt, but technically the estate is paying.
Only property in the estate is available for the repayment of debts. Assets can, and often do, pass on to the heirs without the intervention of probate or become part of the estate.
- Not open to creditors: When probate assets skip, they are not required to be used to pay off debts. Creditors generally cannot go after the assets directly to heirs, although there are some exceptions.
- Designated Beneficiary: Certain types of assets have a designated beneficiary or specific instructions on how to hold securities after the death of the account owner. A beneficiary a person or entity chose by the owner to receive assets upon death. For example, retirement accounts and life insurance offer the option to beneficiaries to use. With a good beneficiary designation, assets can be passed directly to the beneficiary without the intervention of inheritances. The beneficiary designation overrides all instructions in a will (the will does not matter because the will applies only to assets that are part of the estate, and the beneficiary designations allow you to bypass the estate entirely).
- Joint building: One of the most common ways in which assets to avoid probate is a joint lease with rights of survival. For example, a few account owners as co-tenants. When one of them dies, the surviving owner immediately becomes the new 100 percent owner. There are pros and cons to this approach so that all options with a lawyer evaluation – some services just don’t get it to avoid paying off debts.
- Other Options: There are various other ways to keep the assets from going through inheritances (including trusts and other arrangements). Talk to a local estate planning lawyer to find out about your options.
Marriage and community of property
In some cases, a surviving spouse may have to pay off debts that a deceased spouse took, even if the surviving spouse never signed a loan agreement or even knew that the debt existed. In the community of property states, marital finances are merged, and this can sometimes be problematic.
The community of Goods states includes Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska residents can choose the community of property handling as well. Contact a local lawyer if you are facing paying bills from a deceased spouse. Even in a community of property states, there are opportunities to wipe out some debts.
In some cases, family members and friends become necessary to pay off debts for a borrower who has died. It is often the case when multiple borrowers are in one account.
- Joint Accounts: Are accounts opened by more than one borrower. It is most common among couples, but it can happen in any form of partnership (including business partnerships). In most cases, every borrower is 100 percent responsible for the debt on a credit card. It doesn’t matter if you have never used the card or if you share the cost 50/50.
- Cosigning: Is a generous act because it is risky. A cosigner applies to credit with someone else, and the cosigner’s good credit score and strong income help the borrower get approved. However, cosigners do not borrow – all they do is guarantee that the loan will get repaid. If you die his signature and the borrower, you are generally required to repay the debt. There might be a few exceptions (for example, the death of a student loan borrower can cause a discharge or other complications), but cosigners must always be willing and able to repay a loan.
- Authorized users? Additional cardholders are usually not required to pay off credit card debt if the primary borrower dies. These persons were just allowed to use the card, but they did not have a formal agreement with the credit card company. As a result, the credit card company cannot usually take legal action against an authorized user or damage the user’s credit. That said, if you are an authorized user and you want to take over the card (or card number) after the primary borrower dies, you can often do that. You will have to apply to the card issuer and get approved based on your own credit scores and income.
- Cheating Lenders is an exception to everything above: For example, if it is clear that death is near and the deceased will not have assets to repay bills, it can be tempting to go on a shopping spree (or make cash withdrawals) as an authorized user. If the court decides that this is unethical, an authorized user can pay off the debt.