Credit card debt has a reputation for keeping people up at night, and understandably so. If you get bogged down with a high balance you can’t easily afford to pay off, it can take years to get out of debt. But what happens to your credit card debt if you die before you’ve repaid it?
When a person dies, the courts freeze their assets until their will is validated (if they have one). Then, their debts are settled and the beneficiaries of their will are identified. This process is known as probate.
Credit card debt is a type of unsecured debt, which means it’s not linked to any form of collateral, like a car or house, and the state will probably mandate that a person’s remaining assets are used to pay off the debt.
Such assets might include any remaining cash and/or property with cash value. Some assets, such as retirement accounts, eligible brokerage accounts and life insurance payouts, might be shielded from this process as long as there is a legal beneficiary (known as a custodian).
If the deceased has no assets, loved ones won’t be directly responsible for paying the debt unless they are a joint account holder on the deceased’s credit card, according to the Consumer Financial Protection Bureau (CFPB). Authorized users are generally not held responsible for the deceased’s unpaid balances.
While your heirs may not be legally responsible for paying your debt outright, all debts must be settled before any loved ones can receive their share of the inheritance. There are a few workarounds to this, including setting up an eligible trust fund, but you’ll need to hire an estate lawyer to set one up and it requires planning well in advance.
Probate laws differ from state to state, but if you have any joint account holders on your credit cards, you should come up with a plan in case either party passes away. To get a better sense of what the probate laws are in your area, visit your state court’s website or speak to a local estate attorney.
How to avoid surprises
If ballooning credit card debt keeps you up at night, there are steps you can take to get your balance under control. Pull your free credit report and sign up for a free credit monitoring service so you have a clear picture of all your debt.
Megan DeMatteo
About the Author
Ryan Christensen
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