What Happens to Credit Card Debt When You Die?
Want to know what happens to credit card debt when you die? Thinking about death is never a topic that many people like to talk about. In fact, it is not easy for most of us because feelings are mixed and it is very easy to let yourself be guided by the heart instead of wisdom and reason.
What Happens to Credit Card Debt When You Die
When a person dies, a series of procedures must be carried out both to corroborate that the individual died and why, as well as to clarify and cancel all those procedures that the person has not completed or left behind.
The Financial Products
Some financial products have life insurance, such as mortgages or credit cards that cover the debt when the holder dies, but we must not forget that in the case of credit cards, it is not valid if it is more than three months late, or if the card is used the following days prior to death. It all depends on the type of credit that has been contracted and with which institution.
Although each bank establishes a different process in case of death for its clients, there are general steps that you should be aware of. In principle, the financial institution is obliged to cancel a credit card when the holder dies. There should be no problems in requesting it, but you may be challenged and that is why it is vital to be informed.
The Financial Institution
Have you really ever wondered what happens to credit card debt when you die? If this is the case, there are varying answers to this question. What happens in these cases is that the relatives or people close to the person who died have to notify the financial institution, be it a bank or a department store, of the person's death. Bank credit card debts have the benefit of releasing the debit balance due to death with a maximum of the total credit limit of the card or the unpaid balance of the account.
Purchases made with additional cards after the cardholder's death is not considered, nor are the payments they generate exempted. What follows is that these institutions comply with their obligation to cancel the credit card, to prevent someone from misusing it. In the case of banks, debts are eliminated, but the same is not the case with departmental cards.
The Reasons
There are two reasons why the bank or credit card company would consider eliminating the debt:
The cardholder acquires insurance at the time of credit, which covers credit card debt solutions in case he or she dies
The bank simply forgives the debt on the line of credit when the cardholder dies
In both, the first and second cases, the next of kin are not obliged to pay the outstanding debts of the person who has died, although they must notify the death within a period of no more than 180 days after death. If for any reason, charges appear in the account that are dated after the cardholder's death, they must be paid, since it will be obvious that someone else used the card; believing that with the death of the person such debts would be forgiven.
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Joint Accounts
When it is a joint account, the debt will appear in the credit history of all those who are co-signers and jointly responsible for the payment. This means that if a person dies and you are the co-borrower and you do not pay, it will be reflected on your credit history. For this reason, you will be responsible for the debt. While only the person’s estate will assume the debt, if it is a joint account with a spouse or family member, you would not get off the hook so easy. Even if you are common law and not married and have a joint account with the deceased, you will be responsible for paying the credit card debts.
In a joint account, the debts are divided 50/50, which means that the creditors will forgive the half owned by the deceased, but the other living person has to pay their half.
The Authorized User
In the case where the living person is only an authorized user and not a joint account holder, it is possible that the former won’t be liable to pay the debt; especially, if the authorized user did not incur any debt on the account.
The Heir
In other words, the decisions that were made on this credit card (good or bad) when the person who died was alive are reflected in all the credit histories of all the co-borrowers. On the other hand, if the credit that the person had in life is for an asset that can be inherited, the credit agreement can affect the heir. That is why a will is necessary when the person is alive so that heirs can become more informed on the financial assets and debts associated with the disease. It is only through a will, sometimes, that the heir or heirs will know if they are responsible for paying credit card debt for the decease.
Advance Details
The main recommendation is to know in advance the details of the will, the person’s financial situation, any existing contracts, and the guidelines to cancel an account due to death. They almost always come in the form of insurance, the release of balances due to death, the regime of balance due to death, insurance on balances, or release of the unpaid balance due to death. If you remarry and/or change legal beneficiaries, the best thing to do is update your information at the banks and credit institutions where you are a client, thus, if you die, the debt will not pass to people with whom you already have a relationship.
Reading the will and collecting insurance are the most common procedures that people worry about when someone dies, but what about that person's debts? Oh! This is an issue that is not considered to be important when the person is alive, but yet it can gravely affect family and/or friends.
In case of not notifying the bank of the death of a person and he has some kind of debt, these can be inherited. What happens to credit card debt when you die and what happens to a person's credit cards when they pass away? In general, and it cannot be stated enough, almost all credit cards have insurance in the event of the cardholder's death. This protects family members from paying any outstanding debt that the person has. Be careful, though because this is not the same for departmental cards or additional cards. The question then is how to know if the credit card has cancellation insurance due to death?
How to Know if the Credit Card has Cancellation Insurance due to Death?
The answer is very simple. You can check this:
- In the contract: When the credit card is granted, the holder must sign a contract specifying the insurance and clauses under which the credit card was granted.
- In the statement of account: If the holder contracted an additional insurance or service with a recurring charge, you can check it on the credit card statement.
- At the branch or customer service phone: If you do not know how to proceed in this situation, it is best to approach your bank and discuss the situation with an advisor who will guide you on the insurance that the card has and the steps to follow for cancellation.
Necessary Documents
It is very important that before carrying out these procedures, you have the following documents on hand:
- Certified copy of the death certificate of the credit card holder
- Official identification of the deceased
- Official identification of the person who will carry out the procedure
- Letter in writing where the bank is notified of the death of the holder, it must include complete personal data and card or account number
The Executor
If you are the person who is solely responsible for the credit card debt, your estate will pay for the outstanding balance. However, when the estate closes, the debts won’t be able to be transferred to the heirs of your written will. When you die, your executor will be the one to notify the credit card authorities that you have passed away. In so doing, the accounts will finally close to finalize the balance and to avoid having to pay extra interest or finance charges.
The executor is also responsible to close all accounts officially. How is this done? Well, the executor of your will has to send a registered or certified letter to all creditors. The creditors will request the death certificate. It is important to get several copies of the death certificate to send to as many creditors as necessary. And, it does not finish there. The executor is responsible for notifying the three major credit bureaus:
Equifax
Transunion
Experian
It is extremely important to make sure that the credit report labeled “deceased.” In so doing, it prevents fraud where someone may want to use the deceased person’s credit.
Conclusion
Since you now know what happens to credit card debt when you die, it is incumbent on you to take steps to prepare for such an event. In writing a will or having insurance on your credit card, it makes it so much easier for debts to be relinquished when you die. If you want to know more about how to plan ahead, consider learning more about Goalry, which is a financial platform that provides a wide range of solutions dedicated to related topics.