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4 common scenarios for card debt liability after a cardholder dies

Depending on who shares the card determines who pays

By  |  Published: July 28, 2017

Allie Johnson
Personal Finance Writer
Award-winning writer covering consumer and small business credit cards.

Who owes card debt after a cardholder dies?

When a loved one dies, survivors are left to deal with a barrage of tasks, including one many don’t consider: Who pays the credit card bills?

Rather than being surprised by the specifics while overwhelmed and grieving, it’s better to know ahead of time who could be left holding the bill if a cardholder died, especially if you’re an authorized user, a joint cardholder or a co-signer on an account.

Here’s a guide to who’s responsible for the credit card debt after a cardholder dies in four common card arrangements:

1. A sole cardholder
The simplest scenario is when the person who died was the only cardholder on the account, says Sarah Rebosa, an estate attorney and partner at Cullen and Dykman in Garden City, New York. “It’s pretty straightforward,” she says.

The cardholder is the one responsible for the debt, which usually can’t be passed on to surviving family members.

The exception: cases in which the person who died was married, the debt was accrued during the marriage, and the couple lives in a community property state. Nine community property states, including California, Texas and Washington, consider money earned and debts racked up during a marriage to belong equally to both spouses. In that case, the surviving member of the couple “may be on the hook for that debt,” says Charles Vethan, CEO of Vethan Law Firm, a commercial and consumer law firm in California and Texas.

4 CARDHOLDER ARRANGEMENTS THAT DETERMINE WHO PAYS CARD DEBT AFTER DEATH
  1. Sole cardholder: Card debts belong strictly to the original cardholder, unless debt is accrued during marriage in a community property state.
  2. A cardholder with an authorized user: Generally, the authorized user bears no responsibility, but check card terms carefully.
  3. Joint cardholder: The surviving account holder bears sole responsibility for the card debt.
  4. Co-signed card: The co-signer on the deceased’s card is responsible for any card balances.
4 CARDHOLDER ARRANGEMENTS THAT DETERMINE WHO PAYS CARD DEBT AFTER DEATH
  1. Sole cardholder: Card debts belong strictly to the original cardholder, unless debt is accrued during marriage in a community property state.
  2. A cardholder with an authorized user: Generally, the authorized user bears no responsibility, but check card terms carefully.
  3. Joint cardholder: The surviving account holder bears sole responsibility for the card debt.
  4. Co-signed card: The co-signer on the deceased’s card is responsible for any card balances.

If the cardholder was single or married but didn’t live in a community property state, the debt doesn’t just go away, though. If the card is a rewards card that has accrued points, some card companies, when notified of a death, will apply the points to the balance in the form of a statement credit.

If that credit doesn’t wipe out the debt and the estate is going through probate, the card issuer can try to collect from the estate. If there are more debts than assets, the creditor might have to take less than the full amount owed and write off the rest of the debt. If the deceased was flush with cash and valuable goods can be sold, the process tends to go more smoothly.

“If there’s enough money to go around, then very often everyone gets paid and it’s easy,” Rebosa says.

2. A cardholder with an authorized user
It’s fairly common to add a spouse or a teenage kid to a card as an authorized user without giving it a second thought, but it’s actually important for both the main cardholder and the authorized user to check the fine print first.

Generally, authorized users bear no responsibility for paying back credit card debt on the account after the primary cardholder dies, says Matthew Underwood, an estate planning attorney with Wilson Law Group in Madison, Wisconsin. Of course, if the authorized user happens to be a spouse in a community property state, they might be responsible for the debt, he says. That’s due to being the spouse, rather than having authorized user status.

“If there’s enough money to go around, then very often everyone gets paid and it’s easy.”

Some card issuers explicitly state in the terms and conditions that the main cardholder is responsible for all charges, and the authorized user has no liability, Rebosa says.

However, it’s crucial to check the terms of your specific agreement. There have been cases in the past in which a card company has pursued an authorized user in court to try to collect charges the authorized user made on a card.“That’s why it’s extra important to read the credit card agreement or terms on the actual card you have,” Rebosa says.

Card use privileges for an authorized user stop at the moment of cardholder death, Rebosa says. If an authorized user knowingly continues to use the card, they’re liable for the charges they made after the date of death. “That could be considered fraud,” she says.

Authorized users need to protect their credit after the main cardholder dies. Some card issuers don’t report negative information for authorized users, but some do, and the account could go delinquent after the death, thus any late payments would be reflected on the authorized user’s credit reports.

To try to avoid this problem, you can call the issuer, explain the situation and asked to be removed from the account.

3. A joint cardholder
While a less common credit card arrangement than it used to be, joint or shared credit card accounts still exist. If you’re a joint cardholder and the account co-owner dies, you’re responsible for paying off the balance.

In most cases, joint cardholders are legally “jointly and severally liable,” which means each is 100 percent responsible for paying the account, Rebosa says.

In this situation, the survivor needs to protect their good credit by immediately taking over management of the account, if they didn’t handle it before, and making at least the minimum payment on time every month.

“The surviving account holder becomes the sole owner,” Underwood says. The issuer should be notified of the co-owner’s death, so they can be removed from the account.

However, if the surviving co-owner of the account has bad credit or very little income, the issuer might close the account, says Nessa Feddis, a senior vice president at the American Bankers Association. That’s because “the remaining cardholder is unlikely to be able to manage the account,” she says.

The surviving cardholder could reapply on their own, but might not get approved, Feddis says. And even with the initial account closed, they’ll still owe the balance due.

In the case of a joint debt, the surviving account holder likely will not be able to get the estate to pay any remaining debt, Underwood says.

“The surviving account holder becomes the sole owner.”

That’s because “joint account holders share equally the use and benefit of having a credit card,” he says.

4. A co-signer
While only one major financial institution (Bank of America) allows co-signed credit cards anymore, smaller banks or credit unions may still offer them. So, what if your cousin, aunt or nephew had bad or thin credit, or they were too young to get a card on their own, so they asked you to co-sign and later passed away?

In that situation, the co-signer is totally responsible for paying off any debt racked up on the card. “Being a co-signer is having the worst of both worlds,” Underwood says. “The co-signer isn’t authorized to use the card to make purchases, but is liable for the remaining balance.”

It’s important for a co-signer to contact the lender proactively to report the cardholder’s death and arrange to pay off the full balance or make payments going forward. The co-signer needs to keep the account in good standing to protect her own credit.

There’s a silver lining, though. After paying the debt, the co-signer can try to get repaid by the estate since she didn’t make any of the purchases or get any benefits from the account, Underwood says. An estate attorney can help with filing a creditor claim against the estate, Rebosa adds.

Filing a claim isn’t a guarantee you’ll get your money back, but it’s worth a try. “The worst that could happen is that a judge would deny the co-signer’s claim,” Underwood says.

And if the person who dies is the co-signer on your card? Odds are you don’t necessarily have to report the death to the issuer, unless your cardholder agreement spells out the need to do so, but you are 100 percent liable for debt on that card.

Does a survivor pursued for debt have recourse?
If you’re unsure who is liable for outstanding debt on a deceased person’s account, contact the credit card company as soon as possible, says Nancy Bistritz-Balkan, a spokeswoman for Equifax.

However, know your rights, and don’t automatically accept what you’re told. If a creditor is repeatedly calling you to try to collect, brush up on the Federal Trade Commission’s rules on how lenders may contact survivors about outstanding accounts. Debt collectors may contact the spouse, the executor of the estate, or anyone else authorized to pay the bills of the deceased. They can also contact other family members, but only to find out how to get in touch with the person authorized to pay off debts with money from the estate. And debt collectors are not allowed to lead you to believe you’re obligated to pay a bill owed by the deceased when you’re not.

If the lender says you’re liable for a debt but you disagree, and you can’t resolve the problem on your own, consider talking to an attorney. You can contact either a consumer attorney who specializes in credit and debt issues or an estate attorney in your state, Rebosa says.

If you know you’re liable but you can’t pay, meet with a credit counselor from a reputable credit counseling agency for help budgeting and creating a plan to tackle your debts.

If you’ve had a loss of income due to the death in your family, you should be eligible for the credit card issuer’s hardship program. To enroll, call the creditor and ask for their hardship department. Briefly explain your situation, and ask if you can set up a payment plan that fits your budget. However, know that if you go this route, the issuer likely will close the credit card.

“If you don’t have the funds to pay, it’s always better to be in communication with the creditor than running from the creditor,” Rebosa says.

See related: 6 steps to take when a cardholder dies, What happens to credit card debt after death?

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Updated: 08-23-2017

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