Credit cards make it easy to rack up high-interest debt that can be difficult to escape, especially if you only make minimum payments each month. Credit card debt can even persist after death, causing headaches for your loved ones after you pass away. The specific rules for how credit card debt is treated after death depend on the details of the account.
Debts and Estates
In general, debt is not something your loved ones can inherit. When you pass away, all of your cash and property becomes a pool of assets called your estate, which your beneficiaries receive according to your will. Credit card debt you have when you die is usually paid out of your estate. For example, if you have a $5,000 balance on your credit card upon death and your estate has $100,000 worth of assets, the person in charge of your estate pays $5,000 to the credit card company and the remaining $95,000 goes to your beneficiaries. If your estate doesn't have enough assets to cover your debt, the credit card company is usually out of luck.
Although credit card debt usually can't pass on to loved ones, an exception arises in the case of joint accounts. When you open a joint account, you share liability for your entire credit card balance with the other account holder and that doesn't change even if one of you passes away. For instance, if you have a joint credit card with a spouse who racks up a large balance before death, you are still responsible for paying it all back.
Credit card companies are wary of handing cards out to people with poor credit scores. Some banks allow co-signers on credit cards, which can let someone with less-than-stellar credit get approved for a credit account. When you co-sign for someone, you vouch for him by agreeing to pay his debt if he doesn't pay. If you co-sign for someone and then he passes away, you are on the hook for any balance he has on the account.
If you are married and have a credit card balance when you die, the debt could pass to your spouse depending on where you live. In community property states, spouses may be held jointly liable for debts they take on during marriage. According to Nolo, community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
- CNN Money: Debt After Death: Banks Chase Down Mourners
- Nolo: Credit Card Debt and Death
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Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.