What Happens To The Balance On A Credit Card Upon Death?
After a person dies, their estate must be settled. Bills, including credit card balances and medical expenses, must be paid out of the assets of the estate, if there are any. Laws require executors to begin the probate process, which allows credit card companies and other companies who are owed money to report those debts.
Credit card companies have a limited amount of time to report owed debt to the executor of the estate. Children or other beneficiaries do not have to deal with aggressive behavior from creditors or collection agencies. Instead, they can refer them to the probate office to report those debts. Debts not reported through probate are not legally binding.
In many cases, the executor of the estate will be able to contact the holder of the debt, or credit card company, and have the debt wiped clear. This is especially common if the value of the debt is under $2,000.
However, credit card companies may choose to go through the probate process to report any debts officially, especially when the amount of the debt is higher. The executor of the estate will use the assets of the estate to pay off any debts, including the credit card balance. However, credit card companies may take a loss if the assets do not cover the amount of the debts and the executor of the estate has placed a lower priority on the credit card debt than other bills.
Through this process, children and other beneficiaries cannot inherit credit card debt. However, marking the estate as solvent, which means there are no additional funds to pay debt, will leave no money to go to the beneficiaries in the will.
Finally, assets such as 401k accounts that do not go through probate cannot be targeted for repayment for credit card and other bills because those assets go directly to the beneficiaries.
However, these rules only apply to credit card accounts that were in a single person’s name. If the account is shared and one of the account holders is still living, that person will become liable for the entire balance of the credit card debt, even if he or she didn’t spend that money.
Consumers should beware of laws regarding credit card debt of deceased people. The Credit Card Act of 2009 prohibits cards from incurring additional fees during the time of payment settlement (probate).