Unfortunately, credit card debt does not vanish after you pass away. The credit card debt is usually paid from the assets of the deceased’s estate. Unless they are a joint holder on the account, children usually do not inherit credit card debt.
If a joint borrower, surviving spouses are responsible for their deceased spouse’s debt. This is not the same as an authorized user. Furthermore, if you live in a community property state, you may be liable for a deceased spouse’s credit card debt. It’s best to double-check your state’s regulations. (The Consumer Financial Protection Bureau is a terrific place to start.)
Even if you did not contribute to a credit card balance, if you signed a joint application for the card, you are responsible for the debt if a family member passes away. This is not the same as being an authorized user on a credit card, which has its own set of rules. Depending on your state, you may not be required to pay the remainder.
If the estate has little value and the credit card owner passes away, the credit card company loses and writes off the debt, presuming there are no joint borrowers. If you recently lost a loved one, avoid using your credit card because it could be considered fraud, complicating the matter even more. Contact the three major credit bureaus (TransUnion, Equifax, and Experian) and request that the account be flagged as “dead.” This should stop the credit card from being used again.
If a creditor requests you to pay off a credit card, I recommend seeking legal advice. Don’t take someone’s word for it if they suggest you’re liable.
Who’s responsible for a deceased person’s debts?
In most cases, a person’s debts do not disappear when they pass away. Those debts are owed by and paid from the estate of the deceased person. Family members are usually not required by law to settle a deceased relative’s debts with their own money. If the estate doesn’t have enough money to cover the debt, it usually goes unpaid. There are, however, exceptions to this rule. If you do any of the following, you may be personally liable for the debt:
- are the spouse of the deceased person and live in a community property state like California
- are the surviving spouse of a deceased individual, and live in a state that mandates you to pay certain types of debt, such as some healthcare costs
- were legally liable for the estate’s resolution and failed to observe certain state probate regulations
Consult a lawyer if you’re unsure whether you’re legally obligated to pay a deceased person’s debts with your own money. You may be eligible for free legal assistance from a legal aid agency near you, depending on your income.
Who can pay debts out of the deceased person’s assets?
The executor is responsible for paying the deceased person’s debts. The executor is the person named in a will to carry out the terms of the will following the individual’s death.
If there is no will, the court may appoint an administrator, personal representative, or universal successor to the estate and grant them authority to settle the estate’s issues. In some states, that authority might be delegated to someone not chosen by the court. State law, for example, may set a different method for someone to become the executor of the estate even if the court hasn’t formally appointed them.
Can a debt collector talk to a relative about a deceased person’s debt?
The law protects persons, especially family members, against debt collectors who engage in abusive, unfair, or deceptive debt collection activities.
Collectors can contact the deceased person’s family and discuss outstanding debts under the Fair Debt Collection Practices Act (FDCPA).
- If the deceased was a minor child (under the age of 18), the parent(s) must be notified.
Collectors can also approach anyone with the authority to pay debts with assets from the estate of a deceased person. Debt collectors are prohibited from discussing a deceased person’s debts with anybody else.
If a debt collector contacts a deceased person’s relative, or another person connected to the deceased, what can they talk about?
Collectors can get the name, address, and phone number of the deceased person’s spouse, executor, administrator, or other person with the power to pay the deceased person’s debts by contacting other relatives or people connected to the deceased (who don’t have the power to pay debts from the estate). Collectors can normally only contact these relatives or others once to obtain this information, and they are not allowed to discuss the debt facts.
Collectors can contact the relative or other person again for updated information, or if the relative or other person provided incorrect or incomplete information to the collector. Even then, collectors are prohibited from discussing the debt.
If I have the power to pay a deceased person’s debt, can I stop a debt collector from contacting me about the debt?
Yes, you have the legal right to stop a collection agency from contacting you. Send a letter to the collector to accomplish this. A simple phone call is insufficient. Tell the collector that you don’t want to hear from them again. Make a copy of the letter for your records, then send the original by certified mail with a “return receipt” to prove that the collector received it.
However, even if you cease talking with collectors, the debt will not go away. The debt collectors may still try to collect the debt from the estate or anyone who falls into one of the above categories.
Who inherits a dead person’s debt?
In most cases, the estate of the deceased person is responsible for settling any outstanding obligations. The personal representative, executor, or administrator is in charge of the estate’s finances. Any debts are paid from the estate’s funds, not from the individual’s own funds.
Does a person’s debt die with them?
When someone dies, their ‘estate’ is used to pay off their debts (money and property they leave behind). You’re only liable for their debts if you had a joint loan or arrangement with them, or if you supplied a loan guarantee; you’re not automatically liable for the debts of a husband, wife, or civil partner.
Does debt pass to next of kin?
Unpaid debts do not simply vanish when someone passes away. It becomes a part of their personal property. Except when they own the loan, family members and next of kin will not inherit any of the outstanding debt. As a result, they can be a crucial component of estate planning.
Do I inherit my parents debt?
Is it possible to inherit debt from your parents? It is debatable. You are not obligated to absorb your parent’s debt if his or her estate is in debt. You have the option of just refusing the bequest. A Licensed Insolvency Trustee, on the other hand, can restructure an estate’s debts, as shown in the following debt narrative, and allow an heir to retrieve a portion of the inheritance.
Isabelle, a pseudonym, found herself in a difficult financial condition after her father died. As the lone heir and executor of the estate, she discovered that her father was concealing serious financial problems that could jeopardize her fortune. She was burdened by the fact that, in addition to grieving, she had to settle an insolvent estate in which the obligations outweighed the assets.
Isabelle was going through a very trying period in her life. She had to balance the stress and emotional toll of losing a parent with complex administrative tasks, such as liquidating assets, repaying debts, and paying out a life insurance policy. She is concerned that her inheritance will put her in debt.
Laurier Richard, a BDO Licensed Insolvency Trustee in Quebec City who is well known in the community for being a courteous and experienced debt professional, was recommended by a friend. Laurier shared his debt tale with us because he believes it will help other people who are debating whether bankruptcy or a consumer proposal is the best way to settle inheritance debts.
Isabelle isn’t the only one who feels this way. After a parent passes away, many people are left with their parent’s debt. In addition, senior indebtedness is on the rise. According to the BDO Affordability Index, 55% of Canadian seniors are in debt, with 30% having unsecured debt in excess of $30,000.
“It’s vital to keep in mind that you don’t always inherit debt. You must decide whether or not you want to inherit debt. Certain property, investments, or other assets may be passed down to you as an heir, but you will also be responsible for any obligations that are not listed in the will. It’s why it’s critical to assess an estate’s assets and liabilities before accepting an inheritance.”
There’s more, though. When elder children are uninformed of their parents’ financial challenges, such as coping with mortgages, home equity loans, credit card debt, vehicle loans, medical bills, and so on, inheritance issues are exacerbated. Isabelle’s father never mentioned his financial situation. And no one was aware of his financial difficulties.
Isabelle’s anguish was compounded by the fact that her father had to face this financial load in quiet. Laurier recalls, “However, her reaction to this news was really healthy.” “She was able to tell the difference between her father’s memories and his financial situation with ease.” ‘My father is my father, his debts are simply debts,’ she used to say.
Isabelle was nervous and apprehensive about her responsibilities as executor when she arrived at BDO’s Quebec City office. Her father’s debts outweighed his assets, and a notary had already begun an inventory of the estate. She was also apprehensive about depositing the check from her father’s life insurance policy. Is she instantly responsible for all of his debts if she cashes this check?
Laurier was able to calm her nerves. To begin with, she was able to deposit the check from her father’s life insurance policy without difficulty.
“Many executors and beneficiaries are hesitant to get life insurance policies. If the estate is in debt, there is a prevalent misperception that creditors will have access to these funds. That is not the case. In most circumstances, a beneficiary is named on a life insurance policy. Creditors are unable to establish a claim on these money unless the policy identifies the estate as beneficiary rather than a person.”
As a result, Isabelle could deposit her check and the estate’s debts could be dealt with separately.
When an estate’s debts outnumber its assets, a Licensed Insolvency Trustee (LIT) can be extremely beneficial. An LIT can assist you in determining your options as an heir or executor, as well as finding solutions to your inheritance debts.
Isabelle’s father’s estate may be divided as follows: assets (home and vehicles) were around $50,000, while unsecured debts reached around $80,000. (lines of credit and credit card bills).
Isabelle was presented with two options by Laurier. They have the option of declaring the estate insolvent or submitting a consumer request. The sale of the estate’s assets would not be enough to pay the creditors in the event of bankruptcy, but the consumer proposal may renegotiate the estate’s debts while also allowing Isabelle to profit from the sale of her father’s assets.
A consumer proposal is preferable to bankruptcy because it allows you to maintain your assets separate from your debts. “That’s why, when filing a consumer proposal, many homeowners don’t have to worry about losing their homes.” Laurier argues, “We can renegotiate their obligations and protect their assets.”
Laurier was eventually able to reduce her late father’s debts from $80,000 to $30,000, a savings of more than 60%. Isabelle was able to pay off her inheritance bills and even keep a portion of the proceeds after selling the estate’s assets for around $50,000. She felt a sense of relief. Her responsibilities as sole executor were relieved by the consumer proposition. She had the impression that her father would be relieved as well.
Do you have any inquiries regarding debt reduction options? There is reliable guidance accessible. Make an appointment with a debt expert today for a free, no-obligation consultation.
How do creditors find out about inheritance?
The distribution of estates to heirs is public record. Creditors and collection agencies frequently search those databases for debtors among the beneficiaries of inherited property. This informs them that a debtor may now have sufficient funds to repay all or part of their obligation.
The only way to protect such assets if you file for bankruptcy or if a creditor sues you for repayment is to not own them. Otherwise, inherited money in a bank could be taken to pay off the obligation. If your inheritance consists of real estate, the creditor may file a lien against it. This means that the creditor can use the earnings of a property sale to pay off the debt or even force you to sell it.
It may now be in your best interests to pay off debts with inherited assets. It may spare you from going to court, as well as improve your credit rating and your prospects of eventually qualifying for credit or a loan.
However, there are a few possibilities if you desire to keep the inherited assets for another purpose.
One option is to relinquish ownership of the property. This entails relinquishing all rights to the inheritance and transferring it to a descendent, such as your children. Before you take ownership of the property, you should disclaim it; otherwise, a court may accuse you of fraud. If this is the case, the court will reverse the transaction and award the creditor the inherited property, or whatever amount is required to satisfy the debt.
By putting assets in a trust, the person or persons who are leaving you an inheritance can protect them from creditors. A lifetime asset protection trust is an irreversible trust used when an heir’s ability to safeguard the estate is questioned. The assets in this arrangement belong to the trust, not the beneficiaries. This safeguards assets from being spent down, claimed by creditors, or other parties in a court action, such as existing or prospective ex-spouses.
A spendthrift trust is a similar form of trust that is used to protect estates as they are passed down to heirs. This is likewise an irrevocable trust in which the assets remain in the trust’s ownership. A spendthrift trust permits the trustor, who established the trust, to impose withdrawal limits. A well-crafted spendthrift trust also protects the estate from potential creditor claims.
Living in an inherited home can sometimes shield it from creditor action. A homestead exemption is available for a property that is used as a person’s primary dwelling. If a property receives this exemption, it cannot be sold to pay off a debt if the amount of equity is less than the state’s exemption level.
Individual retirement accounts are another sort of property that has traditionally been protected from creditors (IRAs). Annual contributions to IRAs have been protected up to $1.2 million. However, inherited IRAs are not covered by this protection.
The United States Supreme Court unanimously concluded in 2014 that monies held in inherited IRAs are not retirement funds and so are not excluded from a bankruptcy estate.
When a person inherits an IRA from his or her spouse, the assets can be rolled over into another IRA, which keeps the creditor protection. Non-spouses who inherit IRAs, on the other hand, are unable to roll over monies. Furthermore, the non-spouse beneficiary must take all funds from the original account within a set timeframe, which is determined by the age of the original owner.
Non-spouses who inherit IRAs can also use trusts to protect their assets. A see-through trust and a trusted IRA are the two most common trust options for IRAs.
Large IRAs are often held in see-through trusts, whereas smaller IRAs are held in trusted trusts. The trust owns the IRAs under these arrangements, and its assets can be transferred on to the recipient as directed by the IRA owner (s). Creating any type of trust usually necessitates the assistance of a professional attorney with experience in estate planning.
Are executors responsible for debt?
Executors have a responsibility to properly administer and distribute the deceased’s estate. This may appear to be a straightforward process. Many executors, on the other hand, misjudge the time commitment and the regularity with which sophisticated legal and tax difficulties occur.
Furthermore, while closing an estate, there is no space for error. Personal culpability might result from mistakes.
If you’re thinking about being an executor, check out our FREE PROBATE GUIDE.
To assist executors in understanding their roles and responsibilities, the handbook provides a basic overview of estate administration.
Personal liability
Debts do not die with a person, contrary to popular belief. The executors are responsible for paying the deceased’s debts.
The executors should take steps to satisfy all outstanding obligations after collecting the deceased’s assets. Before transferring the inheritance to the beneficiaries, they must pay all creditors in full.
Up to the value of the estate, an executor might be held personally accountable for the debts of the estate.
If the executors divide the estate and a creditor remains unpaid, the creditor may file a claim against them.
This is true even if the executor was completely unaware of the obligation.
Unknown debts pose one of the most serious threats to executors.
It is best to take every precaution feasible.
The estate will be insolvent if there are insufficient money to fully satisfy the deceased’s debts.
In an insolvent estate, there are certain legal criteria that determine which creditors are paid first; executors must follow these laws to avoid personal accountability.
If you’re looking at an estate that might be insolvent, proceed with caution.
We strongly advise you to seek expert help.
If you make a mistake, your lack of experience is no defense.
What protections are available for executors
When making distributions, executors must carefully examine the debt situation and seek the appropriate protections.
You can seek expert help if you are uncomfortable with the duty of running an estate or are concerned about being held personally liable.
A skilled probate counsel will be conversant with the administration process and will have dealt with unpaid bills in the past.
They will be able to give you the assurance you require that you are carrying out your responsibilities.
Follow us on social media if you want to stay up to date on legal news and learn more about probate and other topics.
How do credit card companies know when someone dies?
Credit reporting bureaus often send out deceased notices, which are then shared with other financial institutions. The alert’s objective is to inform these institutions that the individual in issue has passed away, so that they do not extend new credit products to anyone applying in the deceased person’s name.
Unfortunately, identity fraudsters have been known to take out credit products in the names of deceased people. This information is collected from obituaries and other publicly available sources in certain situations. As a result, while issuing public remarks, the relatives of the deceased may want to avoid including personal information such as the deceased person’s date of birth or residence.
This form of identity theft can inflict significant financial harm to the estate of a deceased person, forcing surviving family members to go through a long and difficult recovery procedure. Families should instantly contact their banks, lenders, and any other financial organizations where the deceased individual had accounts, formally demanding that they issue a deceased alert, to protect themselves against the possibility of fraud. Directly writing to the three major credit reporting agencies—Equifax (EFX), Experian (EXP), and TransUnion (TRU)—can also be beneficial as a precaution.
Debts You Owe Right Now
It’s not commonplace for aging parents or grandparents to live with adult children or grandkids, especially as intergenerational families become more widespread. We have no intention of financially burdening our families. However, you must consider how your debt may — or may not — affect your loved ones now and in the future, in the event of your death.
In general, your relatives are not accountable for any debts you may have incurred while you are alive. However, there are numerous exceptions to this rule.
For example, depending on the state where they live, spouses may be liable for each other’s medical costs.
Who pays for a funeral if there is no money?
If there isn’t enough money to pay for a funeral, The term “destitute” refers to someone who has no money or assets. If a poor individual dies without having enough money to pay for a funeral, the government may pay for it.
What happens when someone dies with debt and no assets?
If you have any credit card accounts with a co-owner, the co-owner is responsible for any account balance.
Keep in mind that a joint owner is not the same as an authorized user who has access to your credit card. Your credit card debt is not the responsibility of an authorized user. If you only have credit cards in your name, the credit card companies can file a claim with your estate to be compensated.
“The debt will die with the debtor if there is no estate, no will, and no assets—or not enough to satisfy these debts after death,” Tayne explains. “Children or other relatives have no obligation to pay the debts.”
Do I have to pay my husbands credit card debt when he dies?
When your spouse passes away, their debt is left behind, but that doesn’t mean you have to pay it. A deceased person’s debt is paid from their estate, which is essentially the sum of all of their assets at the time of their death. If your spouse has a will, the executor specified in the will is in charge of paying creditors from the estate. If your spouse died without leaving a will, a probate court judge will decide how their assets should be distributed and appoint an administrator to carry out those decisions.
In general, you are not liable for your spouse’s debts unless you had a joint credit account (which is different from being an authorized user on your spouse’s account); cosigned for a loan, debt, or account; or resided in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). (Alaska residents have the option of signing a special agreement to pick common property.)
In most places, spouses are jointly and severally liable for each other’s debts. However, rules range from one state to the next when it comes to community property. Consult an attorney versed with estate law in your state if you’re not sure what the law needs.
If you signed or cosigned hospital admission documents or medical treatment authorizations, you could be liable for any medical bills your spouse has that their insurance does not cover. This is determined by the laws of your state and the paperwork you signed.
Will you be required to hand over the proceeds of your spouse’s life insurance policy or access their retirement account to pay the bills if their assets at the time of their death don’t cover their debts? Certain assets, such as life insurance policies, retirement plans, brokerage accounts, and assets maintained in a living trust, are safeguarded from creditors and cannot be used to settle debts after a spouse passes away. Otherwise, the estate executor or probate administrator will prioritize creditors and disburse payments according to your state’s probate regulations until the money runs out. Some creditors will not be paid if there is not enough money to pay all of the bills.
