What Happens to Credit Card Debt After Death?

Sole Propietary Debt vs. Shared Debt

When a credit-card holder passes away, the first determining factor for what happens to that debt typically surrounds who actually owned the debt. If no co-signer or secondary person is named on the credit card, then the debt was the sole responsibility of the debtor. If a co-signer or secondary partner was on the account, then the debt will be transferred to that individual (dependent upon state laws).

Debt Enters Probate Process

Probate law is the law regarding an individual's estate. When a person dies, his estate goes into probate at which point the person's assets are first used to pay off outstanding debts. This occurs before any money or property is willed to the appropriate recipients.

Creditors are paid off based on each state's own laws. If an individual owes a bill and the money to pay that bill is available via the estate, it will be paid. If many bills are owed, state law determines how the person's estate is separated if not enough is left behind to cover expenses.

Debt May Be Forgiven

If an individual's estate does not cover the full debt owed and she is the only person listed on the credit card(s), the bank handling that debt will have no choice but to write the debt off as a loss since it can not legally collect any outstanding cash from relatives, business partners or others.

The one exception to this rule involves spouses living in community property estates.

Community Property Estates

If you and your spouse live in a community property state, you will be responsible for your spouse's debt if he passes away. In some instances, the card company may even go after your home since 50 percent of that dwelling may be considered in your spouse's estate probate.

If you live in a community property state and your spouse passes away with debt in hand, contact an estate lawyer immediately and let her know your situation. Individual cases require expert advice.

Check Your State Laws

The information provided above is not all-inclusive. It's important that you check your own state laws or consult with an estate lawyer to ensure you cover all of the bases for you and your loved ones.