After the death of a family member, many spouses, ex-spouses and even adult children find themselves with a surprise "inheritance" — leftover credit card debt.
When someone dies, the estate pays credit-card balances and other debts. If a person dies with more debts than assets to pay them, creditors can be out of luck — and they often are.
But there are exceptions that could leave the survivors on the hook for someone else's credit-card balance after that person's death.
Joint cardholders beware - If you're a joint cardholder, meaning you co-signed for the credit card, you're liable for the debt. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help keep track of expenses.
If you're only an authorized user, you're not liable when the cardholder dies. If you co-signed as a joint cardholder, then you just got a new credit card debt.
Using a card after death could spell trouble - Continuing to use a credit card as an authorized user after the cardholder's death could put you in big trouble. "That's got criminal implications," says Ayers. "If somebody wanted to make a case of that, is that any different than picking up a card on the street?"
The same goes for using the card as an authorized user when you know the debt won't be paid.
When the estate loses, beneficiaries lose - Even if you are not held personally liable for the debt on a credit card, you'll feel the effects of it if you're a beneficiary of the estate. Debts will be paid from the estate before beneficiaries receive any distributions.
There is a specific time period for creditors to file a claim against the estate. When an estate is probated, creditors are prioritized. Credit card debt is unsecured, unlike a mortgage, which is secured by property, or a car that is secured by the vehicle. So it's likely the credit card company will be at the back of the line when it comes to paying debts from the estate.
That doesn't mean the credit card company won't try to recoup the debt from family members, so don't fall for it if you know you're not liable. Taking some pre-emptive action, such as notifying credit card companies that the cardholder has died, will help prevent them from contacting you.
Before any debts are paid out of an estate, including credit card debt, consult your attorney.
The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
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