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Who Pays Credit Card Debt when You Die?

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Especially with the average U.S. household having $7,027 in revolving credit card debt and Americans owing a total of $416.1 billion in credit card debt, according to a recent Nerdwallet study, some Americans will have credit card debt for the rest of their lives. However, what happens to credit card debt when you die?

Market Realist’s recent article entitled “What Happens to Credit Card Debt When You Die?” says that the short answer is that the deceased’s estate pays off any credit card debt they have left behind. Credit card debt and other debts can pass on to others in some cases, which is a big reason why estate planning is so important.

When a person dies, their solely owned assets are frozen until their will is verified, their debts are settled, and their beneficiaries are identified in the probate process.

The probate process exists partly to protect creditors. The deceased’s remaining assets (such as leftover cash and property with cash value) need to be used to pay off the credit card debt. However, retirement accounts, eligible brokerage accounts, and life insurance payouts are usually protected from this debt reconciliation. Once the debts are settled, the beneficiaries get their inheritance.

The credit card debts are paid off until they’re all settled by the executor or until the estate runs out of money. Unsecured debts, like credit cards, are usually paid off after secured debts, administrative fees, and attorney fees.

There are some circumstances in which another person is legally obligated to pay the deceased’s debt.

Typically, no one is legally required to pay off a deceased individual’s debts, but there are some exceptions:

  • Co-signers must pay loans.
  • People who are on the credit card account  debtors must pay the debt on credit card accounts (although having a card issued to you, if you are not on the account, does not make the debt yours);
  • Spouses have to pay particular types of debt in some states; and
  • An estate’s executives must pay outstanding bills out of property jointly owned by the surviving and deceased spouses in some states.

Also, surviving spouses may be required to use community property to pay their deceased spouse’s debt in certain states.

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska can also be on this list if a special agreement is in place.

If there was no joint account, co-signer, or other exception, only the deceased person’s estate has to pay your credit card debt.

Reference: Market Realist (Feb. 11, 2021) “What Happens to Credit Card Debt When You Die?”