Debt after death: 10 things you need to know
If a family member dies with debt and you start getting calls from creditors demanding payment, are you responsible?
This post comes from Trisha Sherven and Stacy Johnson at partner site Money Talks News.
Coping 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 credit card debt. But can a bank collect a credit card debt owed by your deceased parent or spouse?
The answer depends on a range of factors, from whether it was a joint account to where the deceased person lived.
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 extend to your family, friends or, in most cases, even your spouse.
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.
The fact that your heirs aren't responsible for your debts, however, doesn't mean your creditors won't try to collect from them.
2. Direct creditors to the executor
While heirs or family typically aren't 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. 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.
Here's the process, in the words of TransUnion:
Step One: Contact all creditors that the deceased person(s) did business with and request that they mark their files accordingly. Be sure to forward a copy of the death certificate, once you receive it.
Step Two: Check with the Social Security Administration to ensure that they have updated their files and notified the credit reporting companies.
Step Three: Forward a copy of the death certificate to all three credit reporting companies. Remember to send certified letters when corresponding with credit bureaus or individual companies and keep copies.
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 Grandma's antiques and jewelry away. But, says Credit.com expert Gerri Detweiler, 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. Community property states are different
If you live in a community property state, forget what you read in No. 1 above. Your rules are different.
In a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and, if you choose it, Alaska) one spouse can be liable for the debts of another, even if they didn't agree to them or even know about them. So in a community property state you may be on the hook for the credit card debt of a deceased spouse.
9. If an estate can't pay, the lenders 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 a consumer law attorney or probate attorney to get help.
Do you have a debt after death story?
More on Money Talks News:
People love to denigrate the poor these days, even the working poor, more than ever. But one good thing about being relatively poor despite working in our case at least: no debt.
No mortgage. No car payment. No credit card bill. No medical debt (we pay reduced co-pays via Medicare or equivalent, which we pay out of pocket and taxes are deducted from our pay toward that end.) No phone contract. We couldn't afford any of those things even if we wanted them.
You may say this is a poor standard of living, but we have modest internet, a roof over our heads, we have our loved ones, we use the bus a lot, have enough to eat, and we live within our means. We're FAR more fortunate than many, and I'm very thankful for that. I don't need or want more. We're reasonably happy, despite things being a little cramped. There are homeless people who only eat once a day at soup kitchens who would love to be in our shoes, and we never forget that because we used to be in their shoes and could easily be again. We are week to week.
That said, we do not receive foodstamps or welfare. We just barely fail to qualify. So we aren't even taking that from people's precious "tax dollars" (which we pay into anyway, incidentally... and we're happy to because we know from experience that people need it.)
The only debts I will leave behind when I die are the cost to the state to cremate me and dispose of my remains somehow. No funeral. I don't care. Dust to dust.
A word to the wise:
Never co-sign on a loan - disaster awaits!
Never jointly have a credit card or include others on your cell phone agreement - disaster awaits!
Friends and family may betray you on purpose or otherwise, The road to Hell is paved with good intentions.
Guess MSN needs to run this monthly !!!!
I recently told hubby to remove any money contained in my accounts, cremate me, and, DO NOT spend thousands of dollars on a viewing, wake or funeral which is only for the sake of m*therf*ck*ers who didn't come to see me when I was alive. (They shoulda came to that barbeque.) Cause its stupid as all hell! I suggested he take whatever money he gets from insurance and book a trip for he and the kids and PAY NO ONE~! If he needs to keep the utilities on open a new account in his name. PSEG can't come after me for the balance cause there is no ME! Forget the creditors!
This article is crap! Depending on the individual's assets will depend on what debt if any is paid, Things like real estate that can be attached then yes, but jewelry, art and other personal items should be (especially if there are limited heirs) be pulled out of the estate ASAP and credit cards with no assets attached (like real estate) should be forgotten about, Anyone with a brain in their heads knows to get as much as possible out of a persons estate before it becomes an estate (pre planning) that's why the rich don't pay death taxes and the middle class gives the lawyers and bankers big bonuses.
Other than succumbing to a fatal disease or accident. Just move all assists into your family's possessions. I.e.; home, car, money, ect...
This way you own nothing,
Btw....don't know if this would work, but this is what I am intending to do several years before I die.
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