You can’t take it with you, but do credit card bills follow you to the grave? Does this debt die with you? Or can it come back to haunt those who remain?
There is no one answer. A number of factors, including where you live and who applied for the card, can drastically change the situation.
Here’s the simple part: If the card was yours alone, without a joint account holder, the debt is also yours alone.
Upon your death, your estate is responsible for repaying the balance. If the estate is probated, your administrator or executor will review your assets and debts and, guided by the law, determine in what order the bills should be paid. The remaining assets will be distributed to the heirs by following your will (if you have one) or state law (if you don’t).
Sometimes the credit card company loses
What if the assets don’t cover the bills? “If there is not enough money, the credit card companies should, as my students say, ‘swallow it’,” said Doug Rendleman, professor of law at the University of Washington and Lee.
Creditors are notified of the insolvency of the mass. They erase the bills, and often that’s the end of it. Children, friends or relatives cannot inherit debt. A card company cannot legally force someone else to pay.
The most critical question for whether the living still bear responsibility for a deceased person’s debt is: Was the account individual or shared? If a spouse, family member or business partner has signed the card application as a co-signer (joint account holder), then that person will be held responsible for the balance on that card, with (or instead of) succession.
If this second cardholder is just an authorized user (has not signed the request, is not responsible for invoices, and only has billing privileges), then they are not responsible.
Amendments to the rules of engagement
Two changes in federal law have changed the rules of engagement for recovery after death:
- If there is enough money, the Credit Cards Act 2009 requires the executor of an estate to be notified promptly of the amount and requires credit card issuers to stop charging fees and charges. penalties during the settlement of the estate. This part of the law entered into force in February 2010.
- The Federal Trade Commission released in July 2011 a series of guidelines for collecting debts from friends and relatives of deceased persons. The rules represent the FTC’s efforts to find common ground that allows legitimate collection activity while controlling overly aggressive tactics.
Community ownership complications
The question of who can inherit the debt “becomes a little more complicated in community-owned states,” says Michael R. Kerr, senior director of US government affairs at Enova International. As a rule, property accrued during a marriage is considered common property in communal property states. But, in some cases, so are debts.
State employing community property law
- Alaska (registration)
- New Mexico
States that use community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska also has community property laws, but only if the spouses voluntarily enter into such a community property agreement. Not all community property states play by the same rules. “All states have variations,” says Rendleman.
So if your husband or wife has a separate card account and gets into debt, upon death, “it’s possible that the debt will be transferred to the spouse,” Kerr explains. But it is not always cut and dried. “I think there is case law both ways,” he said.
Bottom line: In community property states, “you have to ask more questions,” says Kerr.
What about the assets?
Not all assets go through probate. There are things like IRAs, 401 (k), brokerage accounts, and insurance that usually go to the person you designate as beneficiary, which is a good reason to keep those designations up to date. In many cases, these assets are not considered part of the estate.
Since these assets are not subject to probate, the executor cannot use them to pay estate bills. So can the credit card company go after the person who inherits?
With employer pension plan accounts, such as 401 (k) s, the answer is no, says Bruce Wolk, co-author of Pension and Employee Benefit Law and Professor of Law at the University of California-Davis. Since the plans are protected by federal law, this will not vary from state to state.
Insurance usually passes outside the estate as well, and in most cases it is also immune to creditors, says John H. Langbein, co-author of Wolk and professor of trust law at Yale Law. School. With IRAs, “it’s a state-by-state issue,” says Wolk. “Although many states exempt IRAs from this type of claim. Likewise, with other assets, such as a brokerage account or bank account, the answer may vary from state to state.
Many states allow a house to pass from spouse to spouse after death without letting creditors intervene; many have laws that protect the family home from creditors.
The matter can become more complicated if the house has only one name, or if it is passed on to a child, another family member or a friend. If the house becomes an issue (or if you’re just worried it could happen), talk to a lawyer to find out exactly what a creditor can and can’t do.
Hunted after death
After Patricia’s husband died with a $ 14,000 credit card balance, she began to receive collection calls. Patricia, a widow living in Oregon, requested that her last name not be used.
For a few months, while the estate was being settled, she continued with the payments. There was not enough money in the estate to pay the entire bill. She learned that as an authorized user, she was not responsible for her husband’s credit card. She therefore stopped paying. And that’s where, she said, things turned sour.
Over the next 32 months, Patricia received regular calls from six different collection agencies. The card company also reported it to the credit bureaus for non-payment. A letter to the Comptroller of the Currency, who regulates national banks, corrected his credit report. But the calls continued.
“They would send me letters and yell at me on the phone,” she said. The calls were coming in around the clock, seven days a week.
She repeatedly asked the card company for proof that she was a co-signer on the account, she recalls. They assured her that she was, but refused to show her any documents. Eventually, she received a subpoena: the company was suing.
Patricia hired a lawyer, who wrote a letter once again explaining that she was only an authorized user. The creditor dropped the lawsuit.
“They didn’t understand the hell they put me through,” says Patricia. But she learned something. “Don’t let them intimidate you,” she said. “Defend your territory. Make sure you get the facts. And challenge them.
When collection calls come in
If you start to receive collection calls after a death, there are three things you need to determine: is this debt valid; is it in the limitation period (the time frame that creditors and collection agencies have to collect on a debt) and are you responsible for it in any way? You must also correctly manage collection calls.
Never rely solely on what the creditor or debt collector tells you.
As the host of a national consumer phone show, Dave Ramsey has heard all kinds of stories. Some collectors will “say anything,” he says. “They will even lie to you and say that you are responsible when you are not. It doesn’t mean they can collect.
Joe Ridout, director of consumer services for Consumer Action, a national advocacy group, was also intrigued by consumers. “There are some incredibly inventive things collection agencies will do to get someone to pay a bill they don’t owe,” he says.
Worried about what action a card company or collection agency might take? “Check with a lawyer,” says James P. Caher, lawyer and co-author of a book on bankruptcy law. “Don’t pay them money. Don’t believe them.
What to do with accounts after a death
If a family member dies, the executor can notify the creditors. If you take care of this yourself and creditors need to be contacted individually, collect the bills, call the card companies and notify them that the account holder is deceased. Find out where to send a certified copy of the death certificate. Include a note with the name of the deceased and the credit card account number. Keep a copy for your records and mail it for proof of the mailing date.
If representatives have questions about the payment, refer them to the executor. Don’t promise anything until you know what the estate’s assets and bills are and what your rights are.
Sometimes card companies, such as American Express, will offer to take over an account if you agree to take on the debt and can pass a credit check. If your credit isn’t as good, you can’t inherit the same low interest rate or the same high credit limit; if you don’t want the account, close it.
After Laura’s mother-in-law passed away, the family discovered that she had no credit card debt but quite a few credit accounts. “We were worried that someone might start using the cards,” Laura says. It was an Indiana resident who requested that her name not be used.
They decided to close them. But even though Laura’s husband had a power of attorney for his mother’s business, “they didn’t want to talk to her,” she said. “They wanted it in writing. They wanted the paper.
She says she had to send multiple notification letters and track who responded, who didn’t, which accounts were closed and which remained active.
After a death Laura says, “It’s just one more thing that takes a lot of work.
See linked: Handling Debt Collection Calls for a Deceased Person, Statute of Limitations for Credit Card Debt, Stop Paying Your Late Mother’s Credit Card Debt