When a Loved One Dies, Don’t Be Pressured Into Paying Debt That Is Not Yours
When we lose a spouse or parent, it is not uncommon for loved ones to be left to clear up his/her affairs and financial matters. It is natural to want to do this quickly while mourning, but our haste could lead to taking responsibility for matters for which we aren’t liable. For instance, when a loved one dies leaving behind credit card debt, are we responsible for its repayment? Generally speaking we are not, although there are exceptions. (1)
In community property states debts, like assets, accumulated during the marriage can be considered jointly owned. In that case, a surviving spouse possibly could be liable for credit card debt incurred by his or her deceased spouse. (1) New Jersey is not a community property state; it is a common law state. Therefore in this State, debt is the liability of the person who signed for and incurred it. (2)
If your loved one leaves behind unpaid charges on a credit card that was in his or her name only, you as an heir would not be responsible for paying that debt. If you were both account holders, however, you would be responsible. Account holders and authorized users are not the same. Authorized users are people the account holder allows to use the card. They are not responsible for paying card balances after the account holder dies. (1)
This is not to say credit card debt simply goes away when a person dies. It is repaid out of the deceased’s estate. If the deceased has a will, the executor sees to it that all debts are paid with the assets from the estate before any of those assets can be distributed to the heirs. In New Jersey, if a person dies without a will, an administrator is appointed to perform the same duties as an executor. (2)
Credit cards do not get top priority when settling an estate. Other types of debt, like taxes, funeral expenses, mortgages and administrative costs take precedence. Usually credit card companies will accept whatever they can get from the estate and forgive the balance. (1) There are some unscrupulous collection agencies, however, who will try to guilt heirs into believing repayment is their responsibility.
As soon as collection agencies or creditors are informed of a client’s death and given the name of his or her executor, they are bound by law to stop calling the heirs. The Fair Debt Collection Practices Act protects heirs against aggressive collection practices by imposing strict penalties against those who violate the law. (1) Creditors have nine months from the date of death to make a claim against the estate. (2) The Credit CARD Act of 2009 stipulates that credit card companies must inform the deceased’s estate of the amount they are owed. They are prohibited from imposing fines or additional fees while the estate is being settled. In 2011, the Federal Trade Commission issued guidelines to end aggressive debt collection practices. (3)
Despite these protections, unpaid debt can have an adverse impact on the heirs of the debtor. For instance, a credit card company can acknowledge that an authorized user is not responsible for the debt, yet still report the account as delinquent and that report can negatively impact the authorized user’s credit score. (1)
There are steps you can take to protect yourself.
– Don’t use the credit card after the cardholder’s death.
– Notify credit card companies of the death and return the cut-up cards.
– Ask the credit bureaus to close your loved one’s credit profile due to his or her death. (1)