Consumers are often confused about what happens to their debt when they die, especially their credit card debt. The answer isn’t all that straightforward, so Bottom Line Personal asked credit card expert Ted Rossman to walk us through the nuances…
Credit card debt is not automatically forgiven by the issuing company. But in most circumstances, that debt is paid from the deceased person’s estate. It does not pass on to survivors of the deceased. If the amount of credit card debt exceeds the value of the estate, the remainder of the debt simply becomes a loss for the credit card issuer. Issuers may pester surviving loved ones for the balance, but they are not obligated to pay it back.
Certain assets, such as retirement plans with named beneficiaries, are exempt from being used to pay off a deceased person’s credit card debt. When in doubt about which assets fall into this category, consult a lawyer well versed in these matters.
Exceptions…
If you were a co-signer or a joint account holder—as opposed to an authorized user—of a credit card, you will be on the hook for a deceased person’s credit card debt. The vast majority of credit card accounts in the US, however, have authorized users, not joint account holders, so this is seldom a problem.
A surviving spouse may be liable for credit card debt if he/she lives in a “community property” state where both the assets and liabilities of a deceased person pass on to the spouse. There currently are nine such states—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
What about credit card rewards?
Points, rewards and miles die with the cardholder, which is why it is a bad idea to hoard them.
