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What Happens to Your Credit Card Debt When You Die?

Published at February 10, 2020 by Ana-Maria Sanders

The average American passes away with about $62,000 worth of debt. In many cases, the estate must reconcile the debt before passing the inheritance on to the beneficiaries. It can be a long, drawn-out process. However, it can be a lot easier if a few steps are taken beforehand.

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First, it’s important to know what happens to your debt when you die.

What happens to credit card debt when someone dies?

What happens to debt after death.

When someone dies owing credit card debt, the person’s estate is responsible for paying the remainder of the money owed.

There are usually no obligations on the part of the beneficiaries when it comes to paying off someone else’s debt; however, there are a few exceptions. A family member or spouse may have to pay back credit card debt after death if:

  • They are a joint account holder on the credit card (an “authorized user” is usually not responsible)
  • State law requires a spouse, family member, or executor to pay off the debt
  • They live in a community property state (Alaska, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin)

It is best to speak with an attorney to better understand who is responsible for paying off a deceased person’s debts and for finding answers to any questions concerning the debt.

What Happens if You Die with Debt?

The process of paying off debts after death and distributing possessions to your beneficiaries is called probate. Unless you have made specific arrangements, a probate court determines how the financial details of your estate will be handled. An executor named in a will is held responsible for deciding who acquires the estate and other financial assets left by the deceased. The process of probate is relatively direct; however, in some cases, it may take months or years to resolve.

If the deceased person has credit card debt as well as assets, the main concern is whether or not the creditor will take the assets. If the deceased person had life insurance, the remaining proceeds go to the heirs before any debt is paid. If the deceased has credit card debt or assets, one fundamental rule applies: beneficiaries cannot take money without paying the bills. The estate needs to first pay secured debts, such as an auto repair loan or balance of a mortgage. Lawyer and administrative fees come next, followed by credit card debt.

If the estate pays off a significant amount of debt, there may be fewer assets left for beneficiaries to inherit. However, every state has its own set of rules, and those who make specific arrangements before death can determine how much debt is paid back.

What happens to student loans if you die?

If a student loan is federally administrated, the spouse is not responsible for paying the remaining debt. If the borrower of a federal loan dies, the loan is automatically canceled, and the debt is forgotten. Private student loans, however, do not offer the same protections to the borrower. Private loan policies vary in the case of death, so it is best to check with the lender to see if they offer any death discharge options.

For most private student loans, the lender will first try to collect from the borrower’s estate. If there is no estate, the lender will move on to the co-signer of the loan. If no one has co-signed the loan, it falls on the spouse, depending on the community property state laws. Fortunately, many community property states offer exceptions for student loans, so the spouse may not be held responsible for paying off the remainder even if they were a co-signer.

If you live in a community property state, it is best to check the laws regarding student loan discharges. If you are not a co-signer and do not live in a community property state, then you may not be expected to pay off any debt.

What Debts are Forgiven at Death?

Credit card debt is forgiven unless someone co-signed on the card, is a joint account holder, or lives in one of the nine community property states. Any remaining debts will fall to the estate, assuming there is an estate. Also, any inheritance left to the deceased person’s heirs must first be used to handle the remaining debt and then distributed among the beneficiaries.

In many cases, debt is paid from the deceased person’s estate. An estate is defined by the sum of assets an individual owns — for example, a house, a car, jewelry, or a bank account. Essentially, an estate is anything that is money or can be sold for money. If someone dies with a large amount of debt, their estate is sold, and the money is put toward the debt.

How to Avoid Passing Down Debt Problems

Those who want to avoid leaving their families with unwanted debt should have an attorney draw up a will or trust before their death. However, even if arrangements have been made, family members may still have to deal with creditors. Debt collectors may still go after family members, despite knowing that they are not responsible for paying off any debt.

In addition to preparing a will, maintaining an organized file of accounts and assets is vital. Family members should be able to access credit card accounts easily and look up balances in case they or the creditors need any information. It is best to inform one’s family and spouse of any outstanding debt to avoid future financial issues.

Ana-Maria Sanders   LoanStart Marketing Manager
Personal Finance
Ana-Maria Sanders has always enjoyed helping people manage their finances. She has fond memories of helping her grandma cut offers out of the newspaper. As the main content writer and marketing manager for LoanStart, Sanders continues to help guide people through the complicated world of personal finances. She especially likes teaching people how to borrow and pay back loans.

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