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What Happens to Credit Card Debt When You Die

What Happens to Credit Card Debt When You Die?

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What Happens to Your Credit Card Debt When You Die?

As a financial educator with over 200 classes and 4,700 high school students under my belt, I’ve encountered numerous financial concerns that plague our youth. Among the top worries are family debt and the potential consequences of a parent’s credit card debt in the event of their passing.

Does your credit card debt become the responsibility of your children, siblings, spouse, or parents when you die? Upon your death, credit card companies cannot demand payment from family members except, in some cases, your spouse. Your credit card debt becomes a liability of your estate, which encompasses all your valuable assets, from real estate to cash to investments. If your estate lacks the assets to cover your liabilities, the credit card company writes off the debt as uncollectible.

Who May Still Have to Pay My Credit Card Debt If I Die?

Community Property States and Joint Debts

If you and your spouse reside in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, or Alaska with an opt-in option), your surviving spouse may be responsible for any credit card debt incurred during the marriage. This is because, in these states, both spouses are considered to have equal ownership of the assets and liabilities acquired during the marriage.

Non-Community Property States and Joint Debts

In non-community property states, your surviving spouse will still have to pay joint account debts, such as credit cards opened jointly during your marriage. This is because both account holders share responsibility for the debt, regardless of which spouse actually incurred the charges.

Who Won’t Have to Pay My Credit Card Debt If I Die?

Protection for Spouses and Family Members

Regardless of your location, even a spouse is not required to repay credit card debt incurred before the marriage, as long as their name is not on the account. This protection extends to family members, such as parents, children, and siblings. They generally have no legal obligation to pay off your credit card balances in the event of your death, whether you have a surviving spouse or not.

The Indirect Cost of Credit Card Debt to My Children

Impact on Inheritance and Asset Distribution

If you pass away without a surviving spouse and your will designates specific assets (cash, property, etc.) for your children, siblings, or parents, remember that your estate must pay your debts and financial obligations during the probate process first.

If your estate lacks sufficient cash to cover your debts and estate fees, it will begin liquidating your investments and other valuable assets. This could result in the loss of a home intended for your child or children upon your death.

Reducing the Financial Burden

To minimize the potential financial burden on your children, it is essential to manage your credit card debt responsibly and consider life insurance or other financial planning tools that can help cover outstanding debts in the event of your death. By doing so, you can better protect your loved ones from the indirect costs of credit card debt and ensure they receive the inheritance you intended.

What If I Run Up My Credit Card Debt Knowing I’m About to Die?

Intentionally accruing credit card debt while aware of your impending death may border on financial fraud. Committing fraud involves knowingly using deception for personal gain.

Being aware that you won’t be around to repay a debt and using it to benefit yourself or your family generally fits the definition of fraud. However, this would require foreknowledge of your imminent death.

For example, if you discover you have a terminal medical condition and want to take a loved one on an extravagant trip, using your credit card with no intention of repaying the debt could lead to legal consequences.

If you die with significant debt and the credit card company suspects fraud, they may investigate and attempt to recover the debt from others involved, such as those who benefited from your fraudulent generosity.

What If My Surviving Spouse Can’t Afford to Pay My Credit Card Debt?

Life Insurance and Communication

Review your life insurance policy to determine if it covers your credit card debts upon your passing. Ensure your spouse knows the policy details, including the insurance company, policy number, agent’s name, and agent’s phone number. Since insurance payouts can take several weeks or more, your surviving spouse should inform the credit card company of your passing and explain the situation.

Negotiating Repayment Plans

If your surviving spouse inherits your credit card debt and cannot afford to pay it off or meet the minimum monthly payments, they might first consider contacting the credit card company directly to negotiate a reasonable repayment plan. Creditors are often willing to work with individuals facing financial hardship.

Credit Counseling

If your surviving spouse cannot negotiate an acceptable repayment plan with the credit card companies, they might consider contacting a nonprofit credit counseling agency, such as Money Fit, to set up a debt management program. These programs can help consolidate debts, reduce interest rates, and create a manageable payment plan.

Debt Settlement: Proceed with Caution

Debt settlement involves negotiating with your creditors to accept less than the balance owed. This requires your spouse to have a sufficient cash sum to make the offer appealing to the creditor and cause unnecessary financial burdens due to the potential for lawsuits. The truth about debt settlement is that some settlement companies will also require a large sum of money themselves for facilitating the ‘negotiation’ for their customer.

Many third-party companies offer to provide this negotiating service for you, but they may charge 25% or more of the amount they negotiate off your balance. Additionally, your surviving spouse may have to pay taxes on the amount of debt written off by the credit card company. The worst-case scenario is that creditors could sue your spouse before they can accumulate the 50% they might accept.

Debt settlement should be approached with caution, as it can have long-lasting negative effects on your spouse’s credit rating and may not guarantee a resolution to the debt issue.

Bankruptcy: A Last Resort

As a last resort, your surviving spouse may consider filing for bankruptcy to protect their home, income, or other valuable assets. However, since most credit card companies don’t typically benefit much from the bankruptcy process, they often prefer to work out alternative arrangements.

Filing for bankruptcy should only be considered after exhausting all other options, as it has severe and long-lasting consequences for your spouse’s credit rating and overall financial health. Consulting with a financial professional or attorney is advised before making this decision.

What If My Estate Can’t Pay Off My Credit Card Debt?

In non-community property states, when you die, all your individual possessions, assets, and financial obligations become part of your estate. In community property states, the surviving spouse “inherits” all assets and liabilities from the marriage.

When planning your estate, remember that your estate incurs fees it must pay before distributing proceeds to your heirs, with the general exception of your surviving spouse. Without a surviving spouse, your estate must pay certain fees and taxes before disbursing proceeds.

Some fees and taxes take precedence over other financial obligations. Generally, before distributing any proceeds or valuables to family members, your estate must first cover fees incurred by the estate (attorneys and executor), taxes, and property-secured debts (e.g., mortgage, vehicle). Unsecured accounts, like credit card debts, are typically paid last, if at all.

The estate must also continue to pay ongoing administrative fees, including utility and property tax bills for any related real estate until the probate process (confirmation and transfer of ownership) is complete.

In community property states, credit card companies will continue to send bills until your surviving spouse or your estate notifies them of your passing. From then on, the credit card company will send bills to your surviving spouse or the estate. However, based on most state laws, if you incurred debts before your marriage, your surviving spouse must notify the credit card company of your passing, at which point the credit card company must write off the debt as a loss.

Related Questions

What debts are not forgiven with the death of the consumer? While most debts are essentially canceled with the borrower’s death if the spouse is not an account co-owner, secured debts persist. These debts must be paid by the deceased’s estate and include mortgages, home equity loans or lines of credit, and vehicle loans.

What proof of death do I need to provide to discharge my family member’s student loan debt? Student loan service providers require specific documentation to discharge the deceased’s loan. First, notify the lender of the family member’s death, confirm where to send the document, then send an original, certified copy, or accurate and complete photocopy of the death certificate.

About the Author

Todd Christensen

Todd Christensen

As the education manager for Money Fit, author, speaker, and financial educator, Todd Christensen develops financial education programs and provides credit and debt counseling for individuals and groups around the country. In 2014, Todd published his first 5-star-rated book, Everyday Money for Everyday People based on stories and ideas he had heard in nearly 1,000 workshops he facilitated on budgeting, credit, debt reduction, saving, and identity protection.
Visit Todd Christensen's Page
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NOTE: This sheet is to inform new or returning clients about our services, records, fees, and limitations that may affect you as a consumer of our services. This form also discloses how we might release your information to other agencies and/or regulators. If you do not understand a statement, please ask a Debt Reduction Services (DRS) counselor for assistance.

Debt Reduction Services, Inc. (DRS) has put into place policies and procedures to protect the security and confidentiality of your nonpublic personal information. This notice explains our online information practices and how we use and maintain your information to conduct our financial education and credit counseling sessions and to fulfill information and question requests. This privacy policy complies with federal laws and regulations.

To provide our financial education and credit counseling services, we collect nonpublic personal information about you as follows: 1) Information we receive from you, 2) Information about your transactions with us or others, and 3) Information we receive from your creditors or a consumer reporting agency. We do not share this information with outside parties.

We use non-identifying and aggregate information to better design our website and services, but we do not disclose anything that could be used to identify you as an individual.

You hereby authorize DRS, when necessary, to share your nonpublic personal, financial, credit, and any information that you provided (including any computations and assessments produced) with the following entities in order to help DRS provide you with appropriate counseling or guide you to appropriate services: third parties such as government agencies, your lender(s), your creditor(s), and nonprofit housing-related and other financial agencies as permitted by law, including the U.S. Department of Housing and Urban Development.

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Debt Reduction Services, Inc. complies with the privacy requirements set forth in the HUD housing counseling agency handbook 7610.1 (05/2010), including the sections 2-2 Mc, 3-1 H(2), 3-3, 5-3 F, and Attachment A.5. At all times, we will comply with all additional laws and regulations to which we are subject regarding the collection, use, and disclosure of individually identifiable information.

  1. Services: DRS provides the following housing-related services: counseling that includes Homeless Assistance, Rental Topics, Pre-purchase/Homebuying, and Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase); Education courses that include Financial literacy (including home affordability, budgeting, and understanding use of credit), Predatory lending, loan scam or other fraud prevention, Fair housing, Rental topics, Pre-purchase homebuyer education, Non-delinquency post-purchase workshop (including home maintenance and/or financial management for homeowners), and other workshops not listed above.

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NOTE: If you have an impairment, disability, language barrier, or otherwise require an alternative means of completing this form or accessing information about our counseling services, please communicate with your DRS representative about arranging alternative accommodations.

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Disclosure to Client for HUD Housing Counseling Services

Debt Reduction Services, Inc. and its financial education arm, Money Fit by DRS, offer the following housing counseling and educational services related to housing, personal finance, and bankruptcy certificates to consumers:
  • Housing Education Courses: DRS offers many online self-guided education programs classified as Financial, Budgeting, and Credit Workshops (FBC), Fair Housing Pre-Purchase Education Workshops (FHW), Homelessness Prevention Workshops (HMW), Non-Delinquency Post Purchase Workshops (NDW), Predatory Lending Education Workshops (PLW), Pre-purchase Homebuyer Education Workshops (PPW), and Rental Housing Workshops (RHW). These courses help participants increase their knowledge of and skills in personal finance, including home affordability, budgeting, and understanding the use of credit, as well as predatory lending, loan scams, and other fraud prevention topics, fair housing, rental topics, pre-purchase homebuyer education, non-delinquency post-purchase topics including home maintenance and/or financial management for homeowners, homeless prevention workshop, and other workshops not listed above relating to personal finance and housing. Course details are found below under “Housing Workshops.”
  • Home Equity Conversation Mortgage (HECM) Counseling (RMC): Via telephone and virtual platforms, we offer the required HECM counseling nationwide in addition to in-person counseling in Boise, Idaho. We also offer in-home counseling options in thirty counties across southern Idaho for an additional fee to cover our travel and additional staff time costs.
  • Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase) (FBC): Clients receive counseling and materials on the proper maintenance of their home and mortgage refinancing. Clients can find help and resources by phone, in our Boise office, or virtually on all topics related to stabilizing their long-term homeownership.
  • Services for Homeless Counseling (HMC): Clients receive phone, virtual, or in-person (Boise) counseling to evaluate their current housing needs, identify barriers to and goals for housing stability, establish a path to self-sufficiency, and connect with emergency shelters, income-appropriate housing, and/or other community resources (e.g. mental healthcare, job training, transportation, etc.).
  • Pre-Purchase Counseling (PPC): Clients receive counseling through the entire homebuying process. Assistance may involve creating a sustainable household budget, understanding mortgage options, building their credit rating, and putting together a realistic action plan to set and achieve homeownership goals.  Additionally, clients will receive materials and resources about home inspections and other homeownership topics relevant to successfully maintaining a home.
  • Rental Housing Counseling (RHC): Via phone, in-person appointments (Boise, ID), or virtual platforms, clients receive housing counseling relevant to renting, including rent subsidies from HUD or other government and assistance programs. Topics can also address issues and concerns having to do with fair housing, landlord and tenant laws, lease terms, rent delinquency, household budgeting, and finding alternate housing.
DRS also offers the following services:
  • A Debt Management Program (DMP) for consumers struggling to pay their credit cards, collections, medical debts, personal loans, old utility bills, and past-due cell phone accounts;
  • The Budget Briefing and Debtor Education Certificates that are required during the Bankruptcy filing process;
  • A Student Loan Repayment Plan Counseling and application service.

Relationships with Industry Partners

Through such services, DRS has established financial relationships with hundreds of banks, credit unions, and creditors such as American Express, Bank of America, Barclays, Capital One, Chase, Citibank, Credit One, Discover, Synchrony, US Bank, USAA, Wells Fargo, and others.

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The client is not obligated to receive, purchase or utilize any other services offered by DRS or its exclusive partners to receive financial education or housing counseling services. Alternatives: As a condition of our counseling services, in alignment with meeting our client services goals, and in compliance with HUD’s Housing Counseling Program requirements, we may provide information on alternative services, programs, and products available to you, if applicable and known by our staff. Alternative DMP services include negotiating better repayment terms directly with your individual creditors, paying your debts as agreed, or, in extreme cases, filing for personal bankruptcy. Alternative credit and education services can be found through MyMoney.gov or the Jump$tart Clearinghouse of online financial education resources. Housing counseling alternatives can be found through HUD at www.hud.gov/findacounselor.
Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.
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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).

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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

Rental, Fair Housing, Predatory Lending / HOEPA, Post-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. credit, budgeting, homeless prevention, debt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).