When someone dies with unpaid credit card balances, their estate pays them, along with other debts. If there are more debts than total assets within the estate, creditors can be out of luck—they may never see that money paid back. But this isn’t carte blanche to begin racking up mounds of credit card debt in the twilight years. There are still repercussions for loved ones when someone dies with unpaid credit card debt.
Parts of an estate creditors can’t touch
After a person’s death, their assets will either be passed to beneficiaries or go into probate, the legal process by which assets are properly distributed to pay the deceased debts, taxes, and other valid claims before any remaining value is distributed to listed beneficiaries. The assets that go through probate—and thus could be used to pay off credit card balances—include bank accounts, investments, real estate, home (sometimes), vehicles, etc.
Assets that do not go through probate and can be paid directly to listed beneficiaries include IRAs, 401(k)s, brokerage accounts, and insurance plans. Credit card companies should not be able to go after individuals who inherit these types of assets, although it can vary state by state.
Because credit card debt is unsecured debt (there’s no collateral backing the debt), it will be one of the last debts paid by the estate. Secured debts, like vehicle loans, will be paid first. So, it’s possible an estate will be used up paying other debts and obligations before the credit card is paid off.
Joint cardholders are left in the lurch
A joint cardholder (someone who co-signed for a credit card) with the deceased is liable to pay all charges the other person made in their last years or months of life—even if the co-signer didn’t know the person was using the card. Spouses, adult children, and even ex-spouses can be on the hook as joint cardholders to pay for the remaining credit card debt.
If, as part of a divorce settlement, one spouse agrees to pay off a joint card but then dies before the card is paid off and the other spouse's name is still on card, the credit card company may come calling to collect the debt.
Authorized users are in the clear
Authorized users of a credit card are not liable after the cardholder’s death. However, continuing to use a credit card as an authorized user after the cardholder’s passing can have criminal implications, especially if it can be proven the user knew the debt wouldn’t be paid. For example, it’s considered fraud to use a credit card of an elderly parent who is near death if it’s known the estate won’t be able to pay the debt.
Beneficiaries may suffer
Even if loved ones aren’t held personally responsible for the credit card debt of the deceased, as beneficiaries of the estate they may still suffer other consequences. Because debts are paid from an estate first, before beneficiaries receive distributions, leaving a mountain of credit card debt behind may mean that children, grandchildren, and other loved ones won’t receive any monetary pay out from certain assets.
Although collections agencies and credit card companies cannot legally force someone else to pay the dearly departed’s credit card bill, they can be an aggressive nuisance to deal with during an already stressful time. Proving death of the cardholder when debt is on the table can be a lengthy and complex process.
All in all, leaving credit card debt behind for loved ones to deal with should be avoided whenever possible.