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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?

By MSN Money Partner Oct 7, 2013 12:33PM

This post comes from Trisha Sherven and Stacy Johnson at partner site Money Talks News.

 

MoneyTalksNews on MSN MoneyCoping 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.

Grim Reaper © Anton Ovcharenko/Vetta/Getty ImagesIn 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:

58Comments
Oct 7, 2013 2:16PM
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You keep repeating this article. Are you trying to make it seem that the debt transfers? No one should take on another's indebtedness. They're dead- that's it. The whole issue of indebtedness is a sham. Credit scores are a con game that we should just get over. Companies can post incorrect data or just keep posting debt that should have been removed and the work involved in dealing with it is hardly worth it.
Oct 7, 2013 5:03PM
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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.

Oct 7, 2013 3:54PM
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This article is 90% incorrect. Notice that no state or federal laws are used as examples? That's because credit card debt dies with you when you die. ONLY IF you have a joint account can they come after the co-signer. This is why it's called "Unsecured" credit. For example: Your home and/or car is a form of secured credit and cannot be kept in a bankruptcy where as ALL CREDIT CARDS CAN. This story is almost all false. Creditors don't want you to discharge an estate before they can get their greedy hands on anything they could liquidate by auction to pay your debt even though they are NOT entitled to it. This is very simple folks, when the creditor calls you for a deceased members account, the first thing they ask is, "Is there an estate?"  The simple answer is, "NO" and that ends that creditors dealing with you forever. I have had to deal with family members creditors a few times and this is the only answer I give them, and to this date I never get a call back and my family members debt is written off as non collectible. END OF STORY. 
Oct 7, 2013 2:58PM
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This article is subsidized by debt collectors. Unless you are on a joint account you aren't responsible for someone else's debt. Even in community property states! This article is very misleading, what if you live in a community property state and you husband/wife get into debt that you don't know about? Yep that's right; nothing will happen to the surviving spouse, the debt collectors can't touch you.
Oct 7, 2013 4:44PM
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Good Luck on that one, if someone in my family dies, those that got BIG BAILOUT MONEY, while the little people didn't get $hit, I'm not paying your A$$es.
Oct 7, 2013 4:36PM
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As a widow my husband died in 1995. He was underinsured, and I had 3 lawyers. Each and every creditor was contacted and almost everyone of them refused to settle on his debts. All his life insurance went to pay on the cards until it ran in 4 years later. After that my house was sold as a fixer upper and I made no money off of it. From 1996 thru 2009 I continued to get phone calls harassing me at home, work you name it. Each debt collector would purchase the debt call up and act as though they did not know he was dceased. I had debt collectors scream at me, harass me and my lawyers even with everything in writing. It is 18 years later and guess what I still get calls sometimes where they see these old debts and ask me when am I going to pay it! I laugh and tell them it is unsecured debt and they are breaking the law trying to collect on a debt that is past the statue of limitations in the State of SC (3 years). Moral of the story is get life insurance, expect to be harassed, and know the debt laws in the state you reside in. As far as this article it is cleary wrong and there are laws where they can appeal the estate to get paid. Credit card companies issue credit cards to the living and one day that person dies, in the case of my husband his debts were paid off it it the interest they wanted. They actually got all their money they just refused to settle.
Oct 7, 2013 7:54PM
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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.

Oct 7, 2013 6:39PM
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When my mom dies I am not paying sh*t!

Oct 7, 2013 5:32PM
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when you're dead & gone so is the payment ..... if the estate runs out of money .... oh well guess they're writing that debt off!!!!

Guess MSN needs to run this monthly !!!!

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I just gave out all the good stuff to family.  Its good advice, I have not met a bank or card issuer who wouldn't do you sloppy and dirty so screw them at their getting the first shot at the family heirlooms
Oct 8, 2013 3:56PM
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The last check you should write it to the funeral home, and it should bounce.  There is a book out there called "Die Broke" and it is written on the premise that you do your kids no favors by passing on tons of money to them, such as an inheritance. Spend it all, and let them make their own so they will value it. My kids know I have read this book and it is a running joke that  they will go to court over my pocket knife and reading glasses.  So just to be fair, I put them in my will. :)  Live it up, and pass on the love for life, you do them more of a service.   So how many of you haven't told your kids you love them. You'd be surprised of how many people will leave an inheritance to their children and not pass on a simple blessing such as their love.
Oct 7, 2013 3:38PM
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When my father died, we paid all his debts as a matter of family honor.  His surviving siblings helped out too.  I don't know what we would have done if he had owed a great deal, because I was on survivor's benefits from the SSA and his brothers were both retired.
Oct 9, 2013 10:24AM
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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! 

Oct 8, 2013 6:58AM
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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.

Oct 7, 2013 4:03PM
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More Capitalist Corporate Propaganda.  We also don't have debtor's prisons.  Although, I am sure some GD beancounter or Lieyer is trying to find a way to make it happen!   Those people need a real job instead of writing laws or chasing people for student loans etc.  Am I the only one incensed by these media Corporate shills???   FTATHTRIO!
Oct 8, 2013 2:55PM
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If your name is not on the account.....Phuck them
Oct 7, 2013 4:06PM
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And God doesn't require buying a book from Israel either.   Help, Help the money changers are insidious and rapacious!   Jesus ran them out of the Temple TOO!
Oct 8, 2013 8:06AM
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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.

Oct 8, 2013 9:33AM
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please tell me no one falls for this.
Oct 8, 2013 4:55PM
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I had a debt collector contact me once at work for me not paying for a service that I canceled and never received.  A year later I was going to refinance my home and it was listed on my credit report that I owed this money.  The bank told me if I wanted to refinance I would have to pay off the debt even though I explained to them what had happened but they did not care.  I paid off the debt collector in order to refinance but felt like it was unfair to me.  I still remember the debt collectors call and after he asking me about a dozen calls he said well then listen to this and he hung up on me.  I am smarter now and now pay cash for everything.  The only thing I owe is my mortgage and will probably sell once I reach maybe 63 years and travel with whatever money I make on the sale so no one will take it.  My Mother died in 2004 and what little credit she had just died along with her but then she was living on very low social security pension.  I agree that credit ratings are useless and only created for huge banks and big companies to be able to charge extra interest.  My estate will have little to nothing as I plan to sell everything and take the money and enjoy it, donate some, give to my family and not as a gift since that can be taxed.
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