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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, how you’ll handle their debt is probably one of the last things on your mind. Unfortunately, the reality in the U.S. is that the spouse or children will most likely become responsible for that debt. If you’ve found 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?

When you die, your estate is usually responsible for paying off any remaining debts you have. 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, the creditor is likely to offer you a payment plan or write off the debt.

With so many variables, we have outlined what happens to credit card debt after death and the steps you can take to deal with it.

Secured and unsecured debt

The management of debts for a deceased estate varies based on which of the following debt categories it falls into:

  • 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). 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 a 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. We’ve also listed contact numbers for legal aid representatives in each state in the frequently asked questions section of this article. Refer to these contacts if you want to seek free, independent legal advice.

Step 1. Notify your bank

Financial institutions have deceased estate and bereavement specialists you can call to help you work through a difficult process.

Step 2. Give 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 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 include:

  • About you. Name, relationship to the deceased, 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 such as a letter of administration.

A bank branch manager may be able to assist with on the spot certification of original documents if you take them to a branch.

Step 3. Bank’s assessment

Here, 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 superannuation funds.

Step 4. 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. If the deceased’s assets are less than the amount owing, the financial institution may contact you to arrange a payment plan. This usually involves a freeze on the interest rate so that interest charges stop compounding. In some circumstances, the bank may write off the debt.

Credit card debt can be paid from a range of sources linked to the deceased’s estate. Most superannuation accounts, for example, offer some form of life insurance that may offer a benefit that covers debts leftover when the account holder passes away.

How debt collectors may contact you

If a loved one with debt dies, and you’re part of their joint account or considered part of the deceased’s estate, you might begin receiving calls from debt collectors. Under a proposed rule from the Consumer Finance Protection Bureau (CFPB), you may even start receiving texts and emails from them as well.

It’s currently legal for debt collectors to call in an effort to collect a debt, though there are certain restrictions. For example, you can tell a debt collector both when and how they may contact you, and you can even ask that they stop calling. Still, many debt collectors escape the oversight of the CFPB and ignore such guidelines.

With the new proposed rule, debt collectors could only call once a week. However, there would be no limit to the number of texts and emails they could send. To avoid the stress of dealing with such outreach, you’ll want to get a plan in place to deal with the deceased’s debt as soon as possible.

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 legal aid to discuss your options. You can also compare credit cards with balance transfer offers or low-ongoing APR to help reduce interest while you work to pay these debts.

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