When a dear one dies, e.g. a member of your family, many spouses, ex-spouses and even adult children get stocked with a surprise “inheritance” –a leftover credit card debt.
When a person dies, their assets pay credit card balances and other debts. If the person turns out to have more debts than assets to pay them off, that’s in effect bad luck for a creditor.
But there are exceptions that could leave you on the hook for someone else’s credit card balance after that person’s death.
Joint cardholders, be on the guard.
Being a joint cardholder means you co-signed for the credit card, and so you are liable for the debt as well. Most Parents 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.
If you are only an authorized user, you’re not liable when the cardholder dies. If you co-signed as a joint cardholder, then you just got a new credit card debt.
“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.
It’s wise to regularly check their credit card reports. Try as much as you can to resolve it before a death or divorce or traumatic event.
Who is in custody of the credit card?
It happens too often: One spouse agrees to pay off a joint card as part of a divorce settlement. But if it so happens that the ex doesn’t do it or dies before the debt is cleared and your name is still on the card, the credit card company will come around to check on you.
In addition to that, according to Glen Ayers (Texas attorney), if you live in a community property state, you’d better hope you didn’t receive community property in the divorce. “That divorce judgment does not bind the credit card company. It’s going to chase you,” he says.
In a community property state, the rules are not the same during life and at death. “In community states such as Texas, any community property that passes to my wife as well as any specific bequest to my children would be liable on my death,” says Ayers.
E.g. If a wife has no contractual obligation to the community property, her separate property can’t be touched, Ayers adds. However, community property can be used to pay off debts. Community debt laws are complex and vary even among community property states, my advice is to talk to a lawyer in your state about your situation.
Using a card after death could put you into trouble
The Continuous use of a credit card as an authorized user after the death of its owner could put you in a big mess. “it’s a criminal offence,”. “If somebody wanted to make a case of that, is that any different than picking up a card on the street?”
It also applies for using the card as an authorized user when you know quite well the debt won’t be paid. For example you’d be committing fraud if you are aware of the fact that a parent is near death and their assets won’t be able to cover up the dept and you go ahead to use it knowing it wouldn’t be paid off.”
When the estate loses, beneficiaries also lose
In case you are not held personally liable for the debt on a credit card, you will feel the effects of it if you’re a beneficiary of the estate. During distributions, debts are giving a high priority and will be paid before any beneficiaries receive their share of the estate.
After death, there is a specific time period for creditors to file a claim against the estate. When an estate is probated, creditors are prioritized. Credit card debt is unsecured, unlike a mortgage, which is secured by property, or a car that is secured by the vehicle. So it’s likely the credit card company will be at the back of the line when it comes to paying debts from the estate.
Well, that doesn’t mean the credit card company won’t try to recover the debt from family members, so don’t fall for it if you know you’re not liable. Taking some pre-emptive action, such as notifying credit card companies that the cardholder has died, will help prevent them from contacting you.
Before any attempt is made to pay off any debts out of an estate, including credit card debt, consult your attorney.