As if you don’t already have enough to worry about when a loved one passes away, what should you do about any outstanding debt from the deceased? Will the heirs inherit and be responsible for the debt? Will it show up as their debt on their credit report?
These questions and more are commonly asked when a loved one passes away. Here are some answers that will hopefully help those in this situation.
Debt is not inherited
First and foremost, it’s important to know that credit card debt does not get passed down. Only the person who signed up for the credit card is responsible for it, and it cannot be transferred to someone else. If the credit card is shared, any living person who is on the account will be responsible for the debt, however.
Additionally, other types of debt will not be added to another’s name or credit history. But that does not mean it doesn’t have to be paid.
Who is responsible for the deceased’s outstanding debt?
When an individual dies, their outstanding debt is settled by their estate. An estate is comprised of a deceased individual’s assets, including their home, car, cash, etc. A person called an executor is usually designated in the will as the individual responsible for the deceased’s estate and financial situation. It is the executor’s responsibility to notify the credit bureaus and contact the lenders and creditors that their loved one has passed and to settle the outstanding debts with the estate.
What if the debt isn’t paid?
As mentioned previously, credit card debt is not passed down and is considered unsecured debt. There is usually a priority list set forth by each state’s probate court that details which bills should be paid first. It usually requires that fees related to the funeral and last medical bills are paid first, followed by taxes, secured loans, and lastly credit card debt.
If the estate does not have enough funds to cover the debt, it will pay in the order of the list and the rest of the lenders may have to cut their losses. But keep in mind that secured debt, or those that are tied to a house, car, etc. can be taken by the lenders if the payments are not made or it is not paid off.
Again, the exception lies with co-signers and joint account holders. If anybody else’s name appears on a credit card, loan, or another form of credit, they will be responsible for the debt even if the other responsible party dies. This is important to know, especially for divorced individuals whose ex-spouse agreed to pay off the debt. If they don’t and they pass away, you could still be on the line and not even know it until you see your credit score dinged.
If your loved one passes away, do not be intimidated by creditors who contact you for payment if you are not responsible. If you are concerned about the state of your loved one’s financial affairs, offer to help them repair their credit and get their finances in order to ease the burden on those left behind when they pass. Because although they will not be financially responsible, they will still feel the burden from a smaller estate left for their benefit and from the hassle of dealing with creditors.