9/27/2012 7:10 PM ET|
Who inherits credit card debt?
Family members of a deceased cardholder may hear from the credit card company if there's an unpaid balance. Here's how to minimize the cost.
After the death of a family member, many spouses, ex-spouses and even adult children find themselves with a surprise "inheritance" -- leftover credit card debt.
When someone dies, the estate pays credit card balances and other debts. If a person dies with more debts than assets to pay them, creditors can be out of luck -- and they often are.
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, beware
If you're a joint cardholder, meaning you co-signed for the credit card, you're liable for the debt. Parents sometimes 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.
"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.
"I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event," says Kerns.
Who got 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 the ex doesn't do it or dies before the debt is paid and the former spouse's name is still on the card, the credit card company may come calling.
Furthermore, according to Texas attorney Glen Ayers, 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 different 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.
If a wife, for example, 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, so talk to a lawyer in your state about your situation.
Using a card after death could spell trouble
Continuing to use a credit card as an authorized user after the cardholder's death could put you in big trouble. "That's got criminal implications," says Ayers. "If somebody wanted to make a case of that, is that any different than picking up a card on the street?"
The same goes for using the card as an authorized user when you know the debt won't be paid. For example, says Kern, "you'd be committing fraud if you knew a parent was near death, and the estate didn't have money, and you used it knowing it wouldn't be paid off."
When the estate loses, beneficiaries lose
Even if you are not held personally liable for the debt on a credit card, you'll feel the effects if you're a beneficiary of the estate. Debts are paid from the estate before beneficiaries receive any distributions.
Creditors have a specific time period 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 loan 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.
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That doesn't mean the credit card company won't try to recoup 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 debts are paid out of an estate, including credit card debt, consult your attorney.
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Never co-sign. Never lend. Never borrow (from people). Keep your finances YOUR responsibility and your spouses/partners THEIR responsibility. Everyone is responsible for themselves.
End of story.
If you are older like I am, you have to be very careful. I have a girl friend, who is the nicest person in the world. She wanted to get married. I said NO!
My friend has a BIG credit card balance, which she pays $350 a month on. Because she spends more than that on the card the balance goes up every month. If we were married and bought a house jointly in our names, even though I paid for it. The credit card company would come after her joint ownership and put a lien on the house for what she owes.
I can't afford that kind of financial disaster in my life. Most seniors can’t, but few consider the financial impact or getting married. Kids don’t either for that matter, but they have time to recover such from a screw up.
What stupid article, When I read the headline I thought it was an eureka moment that I never heard about, but when I read portion of the article I said to myself: This author just discovered hot water.
It's like this person saying that if you co-signed for a vehicle, the lien holder will come after you if the other person dies. Duh!
Here's the real answer............The person is dead and they no longer owe a damn thing! Their heirs are NOT responsible for their debts!
Want to know who was behind all the probate laws............lawyers, politicians and bankers........as a means to steal money and property from the rightful owners!
What you need to watch out for is when something representing your personal creditworthiness, like a credit card, is suddenly worth several times what you can afford to pay. For example; your credit score barely qualifies you for a $200,000 mortgage, but the lender tells you a $600,000 loan is OK.
Be afraid, be very afraid.
If you've signed on for someone else's debt you're, uh, I forget the word, but it rhymes with "blued" & "tatooed". However, if someone tries to hold you responsible for another person's actions, go to law. If that doesn't work, arm yourself & go to the barricades.
If you're old enough to vote you've probably done enough. Noone has the right to hold you responsible for what someone else did too. If that third party dies, tough, the creditor should have done a better job underwriting the loan.
It's called personal responsibility.
After we separated, I found out that she did a Chapter 7 Bankruptcy without me AND also hadn't paid our house payment in 7 months = $1,500 payment /mo. into her pocket + FORECLOSURE..
I was told by her that I "didn't earn enough money" yet she loaned her bro $5,000??
I am soooo glad that credit card debt scene and sort sale etc is gone--ll water under the bridge.
He who dies with the most debt wins. It's time to turn the tables on big banks and make them the bagholders for a change. After all they screwed everybody else for a lifetime!
Bottom line? Have one credit card and pay it off, don't charge things.
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