What Happens To Credit Card Debt After The Death Of A Parent
What will happen after you pass away? Death is a mystery where no one knows the answer. But we know for sure that you will no longer worry about paying bills. For those of you who will stay, this is another story. So what will happen? Will your loved ones bear the responsibility of repaying credit card debts?
In most cases, when you pass away, all your credit card debt solutions are paid from your estate assets. In this guide article, we have done some research, and we found answers to what happens to your credit card debts after you pass away. And what your family and relatives should do to make sure it is handled perfectly.
Who Is Accountable for Your Parent's Credit Card Debt after They Pass Away?
After your parent passes away, someone must clear any debt they have left behind before their next kin or surviving spouse inherit any of their assets. Everything you own, including money in the bank, is collectively known as an estate.
If your parents had a debt, an institutionally appointed person or the executor of the estate would use the estate to clear your debts. But if you never had one, the probate court will appoint one for you. Usually, the executor is someone you have written in your will.
If your parents had more debts than their assets, their estate becomes insolvent. Moreover, whether your family members must pay credit card debt depends on several factors:
joint account holders,
you will be responsible for repaying debts after their deaths. Most joint account holders apply for credit cards together as co-borrowers or co-signers.The credit card firm of their choice checks their credit card report when deciding to issue the joint credit card. Note that if you have a joint account with your parents or with anyone, both of you are fully answerable for your credit card balance.
authorized user
of the other account. If you are an authorized user, you will get a credit card in the name of your account and you can make purchases and payments. On the other hand, the master account holder should pay the credit card balance.If the authorized individual in your account is your deceased parent, you are generally not responsible for clearing the remaining debt. However, there is a charge that is not bound to this. The Common Property State requires the couple to be responsible for the debt of each other.
community property state,
whether you are an authorized user or not, you are responsible for the credit card balance after the death of your spouse.However, these laws can differ from one community estate to another. Therefore, if you live in this type of estate, I highly recommend you ask your attorney with a broad knowledge of estate law. They will help you understand your responsibilities.
What Should You Do Next After the Death of Your Parent?
If your parents pass away and they have a credit card balance. Take the following steps to make sure that credit card debt resolution goes smoothly.
1. Stop using your parents' credit card immediately, you are just an authorized user
You can continue to use a credit card when you are the holder of a joint account. However, if the primary cardholder dies using a credit card, whether you are an authorized user or not, you may be accused of fraud.
For this reason, I strongly recommend allowing each spouse to hold at least one credit card.
2. Create a list of credit cards that your parents own
If you are not sure about the number of credit card accounts the deceased person had, you can ask for a copy of the credit report as the kin or the executor to check.
3. Report the death of your parent to the listed credit card firms
After making a list, check if the deceased was solely holding the credit cards. If they were holding the credit card, ask the accounts to be closed. If they have a joint account, notify the issuer of a credit card that the individual who held the account is deceased.
At this stage, you can choose to keep the account open under your name only or close the account. However, the credit card terms and conditions, and the yearly percentage rate, will change when you are the only account holder.
4. Report your parent's death to the major consumer credit card bureaus
All credit card companies report to the credit bureaus, but this will not happen immediately. Therefore, if you are not ready to wait, you can personally take steps to report the death of your parents to the major credit bureaus.
Doing so helps to ensure that identity thieves will not apply for another credit card in the name of the deceased. However, this process can slightly differ from one credit card bureau to another.
When you report the death, you must have a copy of your parent's death certificate and their social security number. In addition to this, you will have to prove you are the executor of the estate.
If you are not the executor, you'll need to prove you are an authorized individual to act on behalf of your deceased parent.
5. Make a timely payment on any joint account you hold jointly
Whether you are using the card or not, always ensure you make timely payments. A late payment can hurt your credit card score. It can also harm credit life by making it difficult for you to get a loan moving forward.
We know that the death of a parent or relative can lead to depression and loss of track of your personal life. Therefore, to ensure you do not miss a payment, you can use online tools to set minimum payments on the joint account.
6. Get to know your rights before paying the debt collectors
Depending on the state you live in, you may need to wait for a specified period for the bills to come in and public notice of death in a newspaper before distributing the deceased assets.
When dealing with debt, collectors knowing your rights can save you a lot of stress. Remember that you are protected by the State Fair Debt Collection Practices Act (FDCPA). The FDCPA makes it unlawful for creditors and debt collectors to use abusive and unfair practices when collecting debts.
Don't let creditors jump ahead requesting to be the first ones to receive payments, especially when the deceased's debt exceeds their estate.
Sometimes debt collectors can get aggressive, and they might try to prey on those you have left behind during their emotional stage to try and get them to pay a debt they may not owe. When a debt collector reaches you on the phone, do not agree on anything they tell you.
Before paying anything, ask the creditor to submit proof of what they claim for the estate. You can include this in your written notification to the credit card company or submit it later.
Do not use a credit card to make any payments, regardless of whether you are an authorized user or not. If you do this, the company can say that you have accepted the responsibility to ensure that your deceased parents still have credit card debt free.
As a result, if you miss or make a late payment, it will be reflected on your credit card report. Remember to seek clarity on whether you'll need to pay to settle the deceased person's debts or not from your estate attorney in case you reside in a community property state.
Parent's Assets Protected From Creditors?
Assuming you have just discovered that your parents had a higher deposit than their estate. What should you do? Should you withdraw all the funds in your bank accounts or handover your parent's life to an insurance card company?
Generally, debts like car loans and mortgages are secured by a title or a logbook. But credit cards are loans without security, and they do not fall under this class after you pass away.
If you have a small or weak estate, it cannot cover all the debts. The State law will give direction on which creditors will have the highest priority after your death. Usually, any unsecured debts remain unpaid.
In addition to this, the following assets are safe from creditors after you die:
- · The retirement accounts, including personal 401(k) plans, Roth IRA or simple IRA, SEP IRA and employer-sponsored 401(k) plans will not be affected by creditors.
- · Life insurance
- · Brokerage accounts
- · Any assets in a living trust
- · Your homes depend on the estate's law and property management.
Usually, the credit card firms contact those you've left behind after you pass away to help gather information like how they can contact or reach the deceased estate executor.
The good news is that they cannot ask those you've left behind to pay the debts, which are not their responsibility. If you do not have a clear answer to your responsibilities, I highly recommend you seek advice from your estate attorney, who understands the law.
Avoid Surprises
Having a credit card debt manageable while you are alive helps to ensure that the credit card debt solution does not burden your loved ones after you pass away.
If you had a joint account with your relative or loved one, your death can negatively impact their credit score and their credit life while moving forward.
Therefore, it would be best to continuously double-check your credit status and sign up for zero-fee credit card monitoring online. This can positively impact your credit score and your credit life, and those of your loved ones, even after you pass away.
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