- Creditors can pursue the estate of a deceased debtor in order to cover outstanding credit card debt.
- If the estate doesn’t have enough assets to repay the credit card debt, it could go unpaid in some cases.
- Some assets, such as life insurance proceeds and retirement savings, are protected from the grasp of creditors.
- Surviving family members could be forced to repay the debt if they were co-borrowers or cosigners, or live in a community property state.
It’s not a scenario you want to imagine, but it is one you can plan for. The question of what happens to credit card debt when you die—or when a loved one passes away—could be a concern for most us, since about 3 in 4 Americans die in debt.
And though family members typically don’t have to foot the bill when a debtor passes, outstanding balances could diminish their inheritance.
“Laws vary in different jurisdictions, but in many, the estate of the deceased can be held liable for outstanding debts,” says Simon Goldenberg, a consumer advocate and debt relief lawyer based in New York. “Collections can be attempted against the estate, and the estate can be a named party to a collection lawsuit.”
Whether you’re here for yourself or a family member whose debt could impact you, here’s what you need to know about credit card forgiveness after death, and what steps to take toward it.
Is there credit card forgiveness after death?
It would be simple if credit card debt disappeared upon a person's death. Unfortunately, outstanding balances live on, and creditors still expect to be made whole.
Fortunately, however, debt that can’t be covered by an estate will generally go unpaid, without consequence. It’s a de facto form of credit card forgiveness for the surviving family.
Upon your (or a family member’s) passing, remaining assets are pegged for remaining debt—sometimes before wills and inheritances are doled out. If you were to "leave the building" with $10,000 in credit card debt and $40,000 in assets, for example, your heirs could expect to receive up to $30,000. That said, some states’ laws require that survivors are paid before creditors.
An executor, either assigned by a will or a probate court, would carry out paying off debt and distributing assets.
When is the family responsible for the remaining balance?
Things get murkier if a deceased debtor is insolvent—that is, has more debt than assets upon death.
To determine what happens to credit card debt when you die, look at whose names are on the accounts in question.
|When family might be forced to pay the debt||When the debt might be "forgiven"|
|A family member, friend or other relative was a joint account-holder (co-borrower) or cosigner||As an authorized user (not co-borrower) on a credit card|
|While living in a community property state (even if a survivor was merely an authorized user)|
Community property states include:
Alaska, Tennessee and South Dakota residents also could elect community property treatment as well.
Even in cases where you (or your family) might be on the hook to pay off outstanding debt, you wouldn’t have to fork over every cent of the estate’s assets. Oft-protected assets include:
Assets in a living trust
Retirement savings accounts
5 steps to take after a credit card holder’s passing
If you’re the survivor of a deceased credit card debtor and want to understand your place in the process, follow these five steps.
1. Stop using credit cards on which you’re an authorized user: Using credit cards in the deceased's name is a common way that consumers accidentally commit fraud. If you’re an authorized user and wish to continue using the card in your name, contact the card issuer.
2. Get help: Work with the executor (if it’s not you) to collect information about the deceased’s credit card accounts. You can request credit reports from the three major credit bureaus via AnnualCreditReport.com.
3. Get more help: The Fair Debt Collection Practices Act protects spouses, parents, guardians and executors from debt collectors. To confirm whether you’re obligated to repay credit card debt in collections, you could enlist an attorney in your state via LawHelp.org and the Consumer Financial Protection Bureau (CFPB).
4. Notify the credit card issuers, credit bureaus: This helps to avoid identity theft and protect your credit report and score if you shared accounts with the deceased. As you’re contacting the bureaus—Experian, Equifax and TransUnion—ask if freezing your family member’s credit report is necessary.
5. Make payments on jointly held cards: If you determine that you’re obligated to repay jointly-held credit card debt, keep up with payments to avoid the consequences of delinquency—you might need to create a new budget. While you’re at it, ask the credit card issuer if the terms of your card will change now that you’re the sole account-holder.