Our office received an interesting question the other day about credit card debt. He wanted to know if his credit card debt is automatically forgiven upon his death. A lot of people are under the impression that your credit card debt dies along with you. That is not exactly correct. There is no black letter law or one size fits all answer for this. It all depends on a number of factors including who else is on your account, whether your estate will go through probate, and what state you live in.
First, upon your death, your estate is expected to pay off any outstanding debt, including your credit card debt. Creditors of all kinds will come out of the woodwork to try to get what you have, and they can be very aggressive with debt collection, knowing that the deceased person’s spouse or their estate may be responsible for that debt. However, the estate trustee or the executor is responsible for contacting the creditors and geting these debts paid off.
Although credit card debt should be paid off, it is not the first priority on the list of outstanding debt to pay off in an estate. Sometimes, the credit card company loses. If the estate does not have the assets to pay off the credit card debt, the debt may be forgiven becauase a credit card company cannot force someone else to pay. However, if the account was shared [i.e. joint bank account, or co-signer], that survivor may be responsible for the outstanding balance.
States vary on what funds are used to pay off credit card debt. 401(k) plans with a specific beneficiary or IRAs are not considered part of an estate, and will go straight to the beneficiary, not through probate. Insurance benefits are similar in this regard.
In community property states, however, it can get complicated. Most assets (and sometimes debts) acquired during a marriage are considered joint property. Therefore, even if a credit card was only in the deceased person’s name, the surviving spouse still might be responsible if they lived in a community state such as Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin. But community property laws are different in every state so check with a probate lawyer to find out more.
The bottom line on any credit card debt question is: Never rely solely on what the creditor or collections agent tells you. Contact your probate attorney and ASK MORE QUESTIONS.