Aside from the emotional fallout of a family death, the loss of a loved one can also leave behind a confusing mess of paperwork and legal implications. To ease this process, many people plan ahead to determine who will inherit their home or how their financial assets will be divided among their children. However, fewer people think through what will happen to their credit card debt.
Will my family have to pay for my credit card debt?
Whether a loved one is liable for your credit card debt depends largely on who owns the credit card. According to the Federal Trade Commission (FTC), individuals are not typically obligated to pay the debts of a deceased relative from their own assets. But in the case of a joint credit card account, both account owners are responsible. "If I die, and I have a joint credit card account with my wife, she is still 100% legally liable for that debt," said Carmen Dellutri, president of Dellutri Law Group in southwest Florida. "So, first rule of thumb: don't have a joint credit card account."
Dellutri advised those who do carry joint accounts to commit to always paying off the balance each month—sound advice for any card holder. He was also quick to point out the difference between being a joint owner on an account and an authorized user. Authorized users have their own credit card with their own name, just as a joint owner would. But they're not a true owner of the account, and as such, they're not typically liable for the balance after the account owner dies—as long as they don't knowingly continue to use the card after the owner's death.
However, in states with community property laws, spouses may be required to use community property to pay for their deceased spouse's debts. Community property laws vary by state, so if you live in one of the following states, you'll need to work with an attorney familiar with your local laws to determine if you're liable for your spouse's debt and what property may be seized to cover that amount.
States with community property laws
- Alaska (if you've chosen to opt in to these laws)
- New Mexico
Generally, if you're an authorized user, or not a user of that credit card at all, then any remaining balance should be recovered from the deceased's estate—the qualifying property, savings and other financial assets they left behind. In this sense, your loved ones could end up paying for your credit card debt in the form of a smaller inheritance, but they aren't typically liable to pay for it out of their own assets.
What if my debt is greater than my assets?
If you leave behind more debt than can be recouped from your estate, certain debts may die with you. Since credit card debt is unsecured—that is, it's not backed by a piece of property or other asset—it falls last in line for repayment when a person's estate is liquidated. Dellutri estimates that in Florida, debt collectors seeking reimbursement for credit card debt only receive money about 10% of the time. "And of that 10%, they may get pennies on the dollar," he said.
This is when things can get dicey.
Creditors commonly sell debt held by deceased individuals to third-party debt collectors. These collectors know they won't recoup 100% of the debt they're owed, but they aim to collect enough to make a profit.
"The debt collectors send these letters strategically—because they know they're going to get a reaction. If I send 100 letters, I may get tagged five times by attorneys, but my response rate is going to be a 10% return on my investment."
The Fair Debt Collection Practices Act (FDCPA), outlines basic guidelines for what third-party collectors can and cannot do, and some states impose further guidelines. For example, under the FDCPA, collectors are not allowed to threaten violence, use obscene language or falsely state that an individual is responsible for a debt. However, some debt collectors don't always follow the rules.
"They'll send false letters or [make] harassing phone calls," said Dellutri. "It happens a lot with husbands and wives. Where one passes away and the other gets a letter saying 'you're responsible for this debt.’"
He shared the story of one woman who came to his firm to ask for help in filing for bankruptcy. She was taking this action based on a letter she'd received that stated she was responsible for her late husband's credit card debt. "She didn't know better. She thought, well, they're not going to lie to me." Fortunately, they determined that the woman was not liable and instead sued the collector. Ultimately she didn't need to pay the debt.
However, Dellutri said it's not uncommon for people to file for bankruptcy when they're not actually responsible for the debt. "I see that all that time—every day in my practice." Some people have been misled by collectors into believing they're responsible for a debt. Others choose to do so knowing they're not liable, simply because filing for bankruptcy is easier than fighting a debt collector for months.
What should I do if a debt collector has contacted me?
The CFPB recommends you gather the following information if you've been contacted by debt collectors:
- Identity of the debt collector, including name, address and phone number
- The amount of the debt, including any fees such as interest or collection costs
- What the debt is for and when the debt was incurred
- The name of the original creditor
- Information about whether you or someone else may owe the debt
If an executor is managing your loved one's estate, you can pass this information to them. The bureau stresses that you should not give out personal or financial information until you've confirmed the party contacting you is a legitimate debt collector.
If the collector continues to contact you, and you feel you're not responsible for the debt, you should seek legal help.
"Read the letter, and if something in the letter doesn't sound right, contact an attorney," said Dellutri. "Most consumer lawyers will do a free consultation, and within 15 minutes, they'll know whether or not this is a legitimate debt collection tactic or not."