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What happens to credit card debt after death?

If a relative or spouse passes away, it's important to know who's responsible for their credit card debt after death.

When you’re dealing with the death of a loved one, their credit card debt is probably one of the last things on your mind. But who is responsible for any credit card debt they leave behind? The answer to this question ultimately depends on a few factors, however, the reality is that the spouse or children may become responsible for that debt. If you find yourself in this situation, use this guide to find out how it works, who needs to pay and what the process is when dealing with credit card debt after death.

Who is responsible for credit card debt after death?

There are a few different scenarios that can play out when a loved one passes away and leaves credit card debt.

  • When you die, your estate is ultimately responsible for paying off any remaining debts you have.
  • However, if the credit card is in a joint account, the other primary cardholders will be liable to pay the remaining outstanding balance.
  • If the credit card debt is only in the name of the deceased cardholder, the liability will be paid out of the deceased’s estate. If there’s not enough money to cover the cost of the debt with the estate, the creditor is likely to write off the debt. Before a creditor writes off the debt, they’ll likely contact you looking for proof that there is no estate and no ability to pay the debt.

Before you pay off any debts, know your rights. If you aren’t responsible for the debts but you make a payment toward them, you could be entering into a contract and ultimately end up responsible for all the debt.

Secured and unsecured debt

The management of debts for a deceased estate varies depending on the type of debt.

  • Unsecured debt. Credit card debt is a prime example of unsecured debt because a credit card is not tied to an asset, such as your car or home – unless it’s a secured credit card. With this type of debt, lenders have limited recourse to claim your assets if unsecured debt is left unpaid. These factors are partly why interest rates and fees can be so high for unsecured products.
  • Secured debt. A mortgage is an example of secured debt that is tied to an asset, such as a house. If you default on your home loan repayments, the lender is within their rights to reclaim possession of the house to recoup the cost of the loan.

How to deal with credit card debt if a spouse or relative passes away

Below are some simple steps you can take to deal with a deceased family member’s finances. It’s also a good idea to seek legal advice if you are concerned about the debts or confused about the process.

Step 1. Check that you are actually responsible.

You are only responsible for debts that you’ve signed into. For example, being a joint cardholder will leave you responsible for credit card debt, while being the child of someone who is deceased with credit card debt will not simply mean you have to take on their debt. Unless you signed for the debt, it is not your debt. A person cannot leave their debts to you unless you’ve entered into a contract with them. Before you pay back any debt, know your rights and know what you’ve signed for in the past.

Step 2. Notify your bank.

If you’ve signed into a contract and find yourself responsible for the debt, or if you’re uncertain if you’re responsible, contact your bank. Financial institutions have deceased estate and bereavement specialists that you can call to help you work through the difficult process.

Step 3. Provide the required documents to your bank.

You may be asked to provide details of the deceased, as well as your personal information so that the bank or financial institution can provide appropriate assistance based on your individual circumstances. The financial institution may also want to see a certified copy of the death certificate and will. Document requirements will vary depending on whether or not you can provide it.

Your financial institution may ask you to complete a deceased estate notification form. The information you’ll need to provide for this form usually includes:

  • Personal information. Your name, your relationship to the deceased, your address and contact information.
  • About the deceased. Name, address, date and place of birth.
  • If there is a will. A copy of the will and the death certificate.
  • If there is no will. Something to prove you’re the next of kin.

Step 4. Bank’s assessment.

The financial institution will review the deceased’s estate. They will look at current debts and assets, including outstanding credit card debts and savings account balances. If there are outstanding debts, the bank will make an attempt to reconcile the debt with available assets from other accounts. This includes accounts held by the deceased outside of the bank’s network, such as their retirement funds. If there is not enough cash to cover the debt, physical items from the estate may have to be sold to pay off the debt.

Step 5. Release of funds.

If there are sufficient funds to cover the deceased’s credit card debt, the bank will pay the liability first and release any leftover funds to the beneficiaries. Credit card debt can be paid from a range of sources linked to the deceased’s estate. For example, life insurance coverage, retirement funds and savings may be able to cover any debts leftover when the account holder passes away.

If the deceased’s assets are less than the amount owing and no one else is responsible for paying the debt, the credit card provider will typically have to write off the debt.

Bottom line

There are plenty of options available to help you deal with credit card debt after the death of a spouse or relative. If you’re unsure which strategy is the most appropriate, contact your bank or seek legal aid to discuss your options.

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