Are your heirs, family or friends responsible for your debts after you die? I’d like to say no, but the answer really depends on a number of factors.
When you take out a credit card in your name, you’re agreeing to repay whatever you borrow. Whether you’re alive or dead, that obligation doesn’t normally extend to your family, friends or, in most cases, even your spouse. The one big difference is with medical expenses. If the debt occurred during the marriage, the surviving spouse does become responsible.
In short, while your heirs can inherit your assets, they don’t normally inherit your credit card balances and they don’t have to pay them. The exception is if someone else was jointly liable on the debt with you. Joint account holders are generally fully responsible for the entire debt, even if all the charges were made by only one of them.
The fact that your heirs aren’t responsible for your debts, however, doesn’t mean your creditors won’t try to collect from them. Even though your heirs or family typically aren’t responsible for your debts when you die, the debt doesn’t just go away. Instead, the obligation transfers from you to your estate.
When a person dies, often times an estate is created. That estate will have someone, known as the executor or administrator, who will be appointed by the Surrogate’s Court to handle all financial issues of the deceased, including their debts.
One of the jobs of the executor is to notify creditors as soon as possible of the death. They should also notify the big three credit reporting agencies (Experian, Equifax and TransUnion) and request the account be flagged with the statement “Deceased: Do not issue credit.” This will help prevent identity theft of the deceased person. Make sure you send each of them a certified copy of the death certificate. Try to remember to send certified letters when corresponding with credit bureaus or individual companies and keep copies as these companies sometimes lose the paperwork.
As mentioned above, people who request credit together are equally responsible for the entire debt. The same is true with a co‑signer, such as on a car or school loan. They are essentially guaranteeing the debt of the borrower. If the borrower dies, the co‑signer becomes liable. Authorized signers or additional cardholders on credit card accounts, however, are not liable. They didn’t originally apply for the credit. They were just allowed by the cardholder to use the card. If the cardholder dies, the authorized signers are generally not on the hook for the debt.
But consider this a warning. If you are an authorized user on a credit card account, you need to stop using the card after the main cardholder dies. If you don’t, since you’re not liable for the debt, this could be considered fraud. The authorized signer would have to ask for a card to be issued in his or her own name. That will most likely be a new card application, based on that person’s credit history, income, etc.
You also may think that you can immediately start giving Grandma’s antiques and jewelry away. But usually it’s a good idea to wait. Only after the estate has settled its debts should any of the assets be distributed. Distribute stuff beforehand, and should the estate not have enough to pay its debts, the heirs, or even the executor, could become personally responsible for the debt.
Sometimes the estate has more debts than assets to pay all the debts or there is no estate. This often happens when all the assets pass automatically either because the assets were joint with someone else or there were beneficiaries designated. If no one else can be found responsible for the debt, creditors will be forced to write it off.
If a surviving spouse is a joint account holder on the deceased’s credit card and is having trouble paying the bills, that person may be able to work something out with creditors. Ask for options, such as delaying the payment, a payment plan or even getting the creditor to take a lesser amount. The credit card company would much rather you pay something or pay over time than not pay at all.