Credit Card Debt After Death

One of the most common question I’m asked is, “what happens to my loved-one’s credit card debt when they pass away?  More importantly, will it be my responsibility?”

When you take out a credit card in your name, you’re agreeing to repay whatever you borrow. That obligation doesn’t extend to your family, friends or, in most cases, even your spouse.

In short, while your loved-ones can inherit your possessions, they don’t inherit your credit card balances and they don’t have to pay them. However, if someone else was jointly liable on the debt with you, you’re both fully responsible for the entire debt, even if all the charges were made by only one of you.

While heirs or family typically aren’t responsible for each other’s debts, that doesn’t mean that the debt just goes away. The obligation transfers from the deceased individual to his or her estate.

When a person dies, their estate is born. That estate will have someone, known as the personal representative, who will be designated by the will to handle all financial issues of the deceased, including their debts.

If the decedent’s estate doesn’t have sufficient assets to pay the debt, the credit card company is usually out of luck.

However, if there are assets in the estate, creditors are paid from the assets that pass to the decedent’s estate and get administered through probate. This includes property that passes through a will or end up in Probate Court.  Assets with a directive, that “know where they need to go”, are transferred by other instruments.  These directed assets; such as life insurance proceeds to a designated beneficiary, joint accounts with rights of survivorship, or money in payable-on-death accounts are all creditor protected and credit card companies cannot attach to these assets.

A very common planning tool is a trust.  Assets transferred into a Florida trust are directive assets, protected from credit card debt and special language can be included to ensure that the beneficiary heirs don’t need to worry about credit card debt.

Even if there are assets available to creditors in an estate, in Florida, creditors have two years from the date of death to file a claim against the estate.  A personal representative can serve potential creditors with Formal Notice and the creditor will then only have 30 days to file a claim against the estate.  A seasoned probate attorney knows to file a timely objection to the creditors claim and the burden is on the creditor to prove the debt is the decedents’ debt.

While in most cases a loved-one’s credit card debt is not your responsibility, it’s always a good idea to speak with an estate planning attorney to make sure that your assets and heirs are protected.