Credit Card Debt after Death of a Spouse or Family – How to Handle It.
Credit Card Debt after Death: Do you have credit card debt and you’re wondering what’s going to happen to the debt when you die? If you die with debt from an outstanding credit card, what happens to that? If and from whom it will be paid, it depends on many factors. This article will address any questions you may have.
Who is responsible for credit card debt after death?
Usually, your estate will be responsible for paying off any remaining debts that you have when you die. If the credit card is in a joint account, the remaining outstanding balance will be payable to the other primary cardholders.
If the debt of the credit card is in the name of the deceased cardholder only, the liability shall be paid out of the estate of the deceased. When there isn’t enough money to cover the debt’s expense, the creditor will either give you a payment plan or write off the debt.
We have outlined what happens to credit card debt after death with so many variables, and the steps you can take to deal with it.
Unsecured debt.Credit card debt is a prime example of unsecured debt because a credit card is not tied to an asset (such as your car or home). With this type of debt, lenders have limited recourse to claim your assets if unsecured debt is left unpaid. These factors are partly why interest rates and fees can be so high for unsecured products.
Secured debt. A mortgage is an example of a secured debt that is tied to an asset, such as a house. If you default on your home loan repayments, the lender is within their rights to reclaim possession of the house to recoup the cost of the loan.
General Key exceptions where you might need to pay the debt
Although you’re generally not responsible for paying credit card debt after a relative or loved one’s death, there are some exceptions, including the following circumstances:
You co-signed a credit card account with the deceased person. In this case, you would be responsible only for the debt on that particular card.
You had a joint credit card account with the deceased person. Again, you would be responsible only for the debt on that specific card.
You’re the surviving spouse and live in a community property state like Alaska (if a special agreement is signed), Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Oklahoma (if a special agreement is signed), Texas, Washington and Wisconsin. The obligation would only be for community property, but not separate property the surviving spouse may have.
You’re the deceased person’s spouse and state law requires that you pay for the debt, like certain healthcare expenses paid for with a credit card.
You were legally responsible for administering the estate and didn’t comply with certain state probate laws.
Credit card authorized users aren’t usually responsible for credit card debt after a relative’s death unless one of the rules above applies. That’s because authorized users were allowed to use the card but didn’t formally agree to be responsible for paying off the balance.
How to deal with credit card debt if a spouse or relative passes away
Below are some simple steps you can take to deal with a deceased family member’s finances.
Step 1. Notify your bank
Financial institutions have deceased estate and bereavement specialists you can call to help you work through a difficult process.
Step 2. Give the required documents to your bank
You may be asked to include the deceased’s particulars, as well as your personal information, so that the bank or financial institution may provide adequate assistance depending on your specific circumstances. The financial institution may also wish to see and will see a certified copy of the death certificate. The reporting specifications vary depending on whether you can supply them or not.
You may be asked by your financial institution to fill in a “deceased estate notification form.” The information you will need to provide for this form will include:
About you. Name, relationship to the deceased, address, and contact information.
About the deceased.Name, address, date, and place of birth.
If there is a will.A copy of the will and the death certificate.
If there is no will.Something to prove you’re the next of kin such as a letter of administration.
A bank branch manager may be able to assist with on the spot certification of original documents if you take them to a branch.
Step 3. Bank’s assessment
The financial institution will look into the assets of the deceased here. They will look at current debts and properties, including credit card debts outstanding and savings account balances. If outstanding debts are accrued, the bank must try to balance the debt with available funds from other accounts. That includes accounts held outside the network of the bank by the deceased, such as their superannuation funds.
Step 4. Release of funds
If enough funds are available to cover the credit card debt of the deceased, the bank will first pay the liability and release any leftover funds to the beneficiaries. If the assets of the deceased are inferior to the sum due, the financial institution will contact you to arrange a payment plan. This usually involves a freeze on the interest rate to stop the compounding of interest charges. The Bank can write off the debt in some circumstances.
Visa card debt may be paid from a number of outlets that contribute to the estate of the deceased. For example, most superannuation plans provide a form of life insurance that can include a payout that covers debts left over when the account holder passes away.
Which Assets Are Protected From Creditors?
There are certain assets that creditors can’t go after once you die, such as:
Retirement accounts: These may include an employer-sponsored 401(k) or 403(b) plan, Solo 401(k), SEP IRA, Simple IRA, Roth IRA, or health savings account you may have to fund your retirement.
Life insurance: Life insurance is a contract you sign with an insurer so your beneficiaries are paid a lump-sum payment or death benefit when you die, as long as you make premium payments.
Living trust: With a living trust, you can pass on the property while avoiding the expenses and delays that often come with probate. A living trust is considered a valuable estate planning tool.
Brokerage accounts: Any taxable investment account you open with an investment company or brokerage firm is referred to as a brokerage account. You may invest in stocks, bonds, REITs, CDs, or other investment vehicles within a brokerage account.
Does life insurance cover credit card debt?
An appropriate life insurance package can help to shield family members from financial hardship when an individual dies.
If depending on the actual scheme, the deceased person has some kind of protection in place, it can be used to settle unpaid debt such as money owing on a credit card. But when a person passes away, credit card debt is not the only potential source of financial stress for loved ones. A life insurance policy may also cover the outstanding bills and funeral expenses.
There are four main types of life insurance:
Term Life Insurance: This Life Insurance Provides a lump sum payment to your nominated beneficiaries (often your spouse and/or children) when you die or are diagnosed with a terminal illness.
Trauma insurance: Provides a lump sum of money to help you meet medical expenses and clear debts when you have suffered a medical trauma.
Although it’s daunting to think about what’s going to happen to your debt when you die, protecting your loved ones and avoiding tough circumstances for them in the future should be something you should understand. This is also a good idea to keep track of your debt while you live.