The non-complicated answer is that your credit card debt will probably be written off by the credit card issuer, but it can be a bit more complicated than that. The more complicated answer? The credit card companies could go after the money you leave behind, the money in what everybody calls your “estate.”
Aaron Leak, founder of ECL Private Wealth Management, explains it this way: “When you die, any debt you leave behind usually must be paid before any assets are distributed to your heirs or surviving spouse. Debt is paid from your estate, which simply means the sum of all the assets you had at the time of your death. The executor of your estate uses the assets in your estate to pay your outstanding debts. If you have more debts than you have assets, your estate is insolvent.“
OK, but what happens if my estate is insolvent – and can’t pay off my credit card debt?
“If an estate is insolvent or doesn’t have enough to pay all of the creditors, there is nothing a creditor can do about it,” says Michelle Creeden, a New Hampshire licensed attorney at a multistate law firm, the Law Office of Fox, Kohler and Associates, PLLC tradename National Legal Center.
Some of Creeden’s specialties in law include consumer protection, debtor rights, Fair Debt Collection Practices Act and Fair Credit Reporting Act enforcement and the taxation of estates and trusts.
If there is money, or some money to pay off credit cards, “courts would divvy up the estate to creditors and whatever is left unpaid is written off,” she explains.
Some of how debts are paid off is determined by state law, according to Leak. If you’re really concerned, he suggests hiring an estate attorney to advise you.
But chances are, you will not have a big battle over your deceased father’s or wife’s credit cards, according to Creeden.
When it comes to credit card issuers, “most creditors write off uncollectable debts to get a tax credit,” she says.
Another point that may make your family breathe a sigh of relief after you are gone. If you left some money behind, and the courts were involved, “expenses like burials and filing fees are paid in full first as priority creditors, so the family can cover end of life costs without worrying about creditors,” Creeden says.
So it always works out like that? Credit card companies won’t come after my family if I leave debt behind that can’t be paid by my estate?
Credit card issuers almost certainly won’t, but don’t be surprised if debt collectors ring you up for a little chat. For instance, if you had credit card debt that went to a debt collector before you passed on, your family could still get calls. They have no legal standing to collect that debt, though, as long as your family members didn’t co-sign for the debt on the credit card.
If you are a co-signer for a credit card (this is different than an authorized user, which we’ll discuss below), even if you didn’t personally put debt on the card that was used by your late husband or wife, you do, unfortunately, owe the money on the credit card. That’s because, as a co-signer, that debt is officially your debt.
But bottom-line – if that credit card debt is not yours, you have no legal obligation to pay the debt collector. The debt collector who is trying to guilt you into paying up, knows that.
