Credit Card Debt & Probate
The death of a loved one is stressful, and dealing with the complexities of probate can make the situation more so. Heirs should be aware that personal debt cannot be passed on like personal assets. Although the estate must pay the deceased's bills, in the event the debts exceed the estate's assets then the heirs cannot be held responsible for the obligations.
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Payments From Estate
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Personal, unsecured debts such as credit cards are part of the deceased's estate. Any assets going through probate are considered fair game for any creditors. The executor must pay off all debts from the estate's assets before distributing inheritances to the heirs. The debts must be paid only up to the value of the estate and if debts exceed assets then your state's probate laws dictate the order in which to pay the bills.
Negotiation
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Credit card companies know collecting debts from an estate in probate is a long, expensive process. Executors can use this to their advantage and negotiate with creditors to reduce the amount owed. The executor might wish to engage an attorney or a debt reduction specialist to have the best leverage against the credit card company. Although these kinds of debt reduction programs typically hurt the borrower's credit rating, the only one affected will be the deceased. The credit ratings of family members, including spouses, will not be affected.
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Joint Accounts
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If more than one person is listed on the account as responsible for payment, such as a spouse on a joint account, then the debt passes to the other person on the account. In this case the debt becomes the sole obligation of the other account holder rather than part of the estate and cannot be canceled even if the debt exceeds the estate's assets.
This applies only to other responsible parties. Many credit cards allow the account holder to add authorized users who can use the credit card but are not obligated to pay the debt. Authorized users cannot be held responsible for the debt after the cardholder's death.
Other Survivors
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No survivors of the estate other than joint account holders are required to pay the debt of the deceased. Some creditors may lead survivors to believe they are responsible but unless they are listed as such on the account as a responsible party they are not required to pay the debt. This includes spouses, parents, children and other loved ones of the deceased.
Harassment
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Although the law protects the survivors, some creditors or collection agencies may hound the estate's heirs in an effort to get restitution for the debt. They typically depend on people not knowing their rights and assuming, for example, the deceased's spouse is responsible for the estate's debts.
Explain the situation to anyone who calls about the debts. If the calls continue, write a letter to the creditors involved explaining the situation in clear and non-emotional terms. If the harassment doesn't stop, contact an attorney. Typically a letter from a lawyer will stop the calls immediately.
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References
- Photo Credit bank statment and cut credit card image by Warren Millar from Fotolia.com
