Spouse's passing doesn't absolve widower of joint card debts

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Dear Opening Credits,
I live in Nevada, and my mother-in-law passed two weeks ago. She had a trust. She and my father-in-law have a credit card, and the balance is $20,000. They own a home, and it's paid for. I was a authorized user on the account, too. My father-in-law needs most of the money from the sale of the home to move to a new home and cannot pay the $20,000 off. Do credit card companies negotiate portions of the balance? Can they go after the estate to get their money? -- Michelle Answer for the CreditCards.com expert

Dear Michelle,
First and foremost, my condolences to you all.

You pose a number of interesting issues to tackle, so here are my answers, point by point.

1. Identify who is responsible for payment. I gather that the credit card was in both of your in-laws' names and that, as an authorized user, you also had access to the account. What's not clear is which of you made the charges. This is a critical detail. If it was you who ran up the debt, then it is you who should pay it down. Of course, this is more of a moral matter since the card's primary holders, not authorized users, are legally bound to cover the account balance. Now, if your husband's mother or father accumulated the debt, then your father-in-law is now fully accountable.

2. Know the right reasons for not paying. Please forgive me if this sounds cold, but the fact that your father-in-law wants the proceeds of the home sale to go toward a new residence does not absolve him of his debt. Someone -- he, his wife or you -- borrowed $20,000, and the creditor is going to want it back. It's not as if, upon hearing of his situation, the lender will say, "We understand now. This man needs the money for a new home. Let's just forget about the bill altogether." If they can collect, they will collect. It's business, pure and simple.

3. Know the repercussions of unpaid debt. What could happen to your father-in-law if he doesn't pay? The creditor can take the matter to a court of law. It's a substantial amount of money and eventually they'll take steps to recoup.

Legally, it does complicate things a bit that a trust is involved, so I took your question to David Winterton, a Las Vegas, Nev., real estate and bankruptcy lawyer. According to Winterton, the answer depends on the type of trust your in-laws created. If it was set up prior to your mother-in-law's death and was irrevocable, any assets in the trust are protected from creditors. If the home was included in that trust, then it, too, is protected. "On the other hand," says Winterton, "if it was created after her death as a pour-over trust, the assets are not protected, and the creditors have a right to go after the money owed."

Whatever type of trust was set up, however, the creditor can and likely will begin legal action if your father-in-law doesn't deal with the debt somehow. Why? Even if the bulk of his assets are safe in the trust, there may be some that are not. Getting sued is to be avoided -- it's long, expensive and unpleasant -- which brings me to the final point ...

4. Know how and when to settle a debt. One way to avert a lawsuit but not pay the total sum owed is with a debt settlement. To arrange one, your father-in-law would have to appeal to the lender in a specific way. In brief, he'll need to explain the reason he needs a break, offer supporting documentation as to why he's unable to pay the full balance and then make an offer. This begins the negotiation procedure.  Bear in mind that creditors are under no obligation to accept anything less than the amount due. Therefore, consider why they might agree to a settlement. It's usually because doing so is easier and less expensive than having to go through a long, costly collection and legal process. 

In the end, Michelle, you and your father-in-law need to approach this matter calmly and logically. However, with the loss of a loved one so recent, being objective may be an unbearable struggle. Don't try to contend with it all without impartial and professional assistance. I urge all concerned to work with a reputable lawyer and credit counselor as soon as possible. These are trying times, but I believe you'll get through them with the right help.

See related: 8 myths about settling credit card debt, Credit card debt negotiation in 3 not-so-easy steps, How debt settlement works and how it impacts credit scores, How I dealt with my parents' credit card debt after their deaths, Are you responsible for late parent's debts?

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Updated: 11-24-2017