Who pays my credit card debt after I die?
Before you pass on, you get to decide who is in charge of dealing with your finances. This “executor,” whom you name in your will, is responsible for distributing your inheritance, paying taxes and, yes, satisfying your creditors. The process is called “probate.”
Most people name an immediate family member, but if you don’t choose an executor, the courts will appoint an administrator for you. Depending on the state and who is willing to accept the job, this could end up being anyone from your spouse to one of your creditors — so make sure you make your wishes known.
Probate can be stressful, so your executor may want to hire an attorney to help if they can afford it.
The executor should notify any lenders, including credit companies, that you’ve died. In turn, those companies will inform your executor of any outstanding debts. Your executor will then use your estate — that is, everything you own, from cash in the bank to your home to your investments to your vintage bottle-cap collection — to pay off your debts.
If you still have debt once your bank accounts are drained and your possessions are sold off, then, hey, your creditors are simply out of luck.
That generally means your loved ones are out of luck, too. Like it or not, lenders are first in line for your money, before your spouse or kids see a cent of inheritance. Companies managing secured debt, like home or auto loans, have even greater priority than credit-card companies.
However, certain assets can be safe from hungry creditors. For example, some retirement accounts — like an IRA or 401(k) — and life-insurance policies allow you to designate beneficiaries. That money would go directly to your loved ones.
When are my loved ones liable?
While your family isn’t responsible for your debt, in some situations they aren’t off the hook. Here are some of the most common:
If you have a joint credit-card account. Even if your spouse or loved one never made any payments while you were alive, if their name is on the account, they still have to pay the debt.
If they co-signed a credit card. That’s what they signed up for: to pay your debts if you cannot. In this scenario, they would only be responsible for the debt on that particular card.
You live in a community-property state. If you and your spouse live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin — or live in Alaska and opted in to a community-property agreement — then any debts acquired during the marriage could be shared. The exact laws vary by state.
State law might also require your loved one to pay off certain types of debt, such as medical expenses.
What should they do when debt collectors start calling?
The most important thing is for your family members to know their rights.
Debt collectors must follow codes of conduct established by the Federal Fair Debt Collection Practices Act. Collectors can’t use deceptive practices or suggest someone is responsible to pay your debts if they’re not. Tell your executor not to agree to anything over the phone and request documents to outline the exact amount of the debt.
If they seem unreasonable, your family should try to verify that they aren’t scam artists before handing over any money or personal information. Tell them not to assume they have to pay just because some person on the phone says so.
Collectors can be told to stop calling, even if your family does owe them money. However, they’re legally obligated to provide certain information — for instance, if the credit-card company decides to sue to get what it's owed. Your family members can ask them to reach out in writing instead or, better yet, go through your attorney.
How can I ensure my family is all right?
You can make smart decisions now that will pay off if you die with credit-card debt. An estate-planning attorney can help with more advanced strategies, but here are some key steps you can do on your own:
Be honest about the amount of debt you have. Many people prefer to keep their finances private, but if you’re concerned about dying with debt, transparency will save your family from a nasty shock.
Write a will. Clearly state your executor and your beneficiaries, and update the document as necessary over the years.
Stay organized. Figure out exactly how much you owe and to whom. Let your executor and loved ones know what they are and aren’t responsible for.
Get life insurance and retirement accounts that allow you to designate beneficiaries. Not only are they safe from creditors, but your loved one can use the money to pay off your debts if they do end up being liable. Try using Quotacy to quickly compare life-insurance policies without having to provide any contact information.
Pay off as much debt as you possibly can. A service like Fiona will help you find lenders to pay your high-interest credit-card debt with lower-interest loans, saving you a ton of money in the long run.