Managing Debt

Debt After Death: 10 Things You Need to Know

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Coping with the death of a loved one is difficult enough without the added pressure of creditors calling you to collect on the deceased person’s credit card debt. But can a bank collect a credit card debt owed by your deceased parent or spouse?

The answer depends on a range of factors, from whether it was a joint account to where the deceased person lived.

Here are some questions — and answers — about what happens to bills after someone dies.

1. Are Family, Friends or Heirs Responsible For Debts?

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

In short, while your heirs can inherit your worldly possessions, they don’t inherit your credit card balances and they don’t have to pay them. Exception? If someone else was jointly liable on the debt with you. Joint account holders are generally fully responsible for the entire debt, even if all the charges were made by only one of them.

The fact that your heirs aren’t responsible for your debts, however, doesn’t mean your creditors won’t try to collect from them.

2. Direct Creditors To the Executor

While heirs or family typically aren’t responsible for your debts when you die, that doesn’t mean they just go away. Instead, the obligation transfers from you to your estate.

When a person dies, their estate is born. That estate will have someone, known as the executor or administrator, who will be designated by the will and affirmed by a court to handle all financial issues of the deceased, including their debts.

If you’re not in charge of an estate and get a debt collection request, direct the caller to the executor, then tell the caller you don’t want to be contacted about that debt again.

3. Notify Creditors and Credit Bureaus

The executor of the estate should notify creditors as soon as possible of the death. They should also notify the big three credit reporting agencies – Experian, Equifax and TransUnion – and request the account be flagged with the statement “Deceased: Do not issue credit.” This will help prevent an all-too-common problem: identity theft of the dead.

The executor should also request a copy of the deceased’s credit report. This is the best way to find out exactly what debts were outstanding.

Here’s the process, in the words of TransUnion:

Step One: Contact all creditors that the deceased person(s) did business with and request that they mark their files accordingly. Be sure to forward a copy of the death certificate, once you receive it.

Step Two: Check with the Social Security Administration to ensure that they have updated their files and notified the credit reporting companies.

Step Three: Forward a copy of the death certificate to all three credit reporting companies. Mail your information to:

TransUnion LLC
P.O. Box 2000
Chester, PA 19022

Experian
P.O. Box 2002
Allen, TX 75013
888-397-3742

Equifax
P.O. Box 740260
Atlanta, GA 30374
800-685-1111

Remember to send certified letters when corresponding with credit bureaus or individual companies and keep copies.

4. Find Out Who’s Responsible

As mentioned above, people who request credit together are equally responsible for the entire debt. The same is true with a co-signer, who essentially guarantees the debt of the borrower. If the borrower dies, the co-signer becomes liable.

Authorized signers or additional cardholders on credit card accounts, however, aren’t liable. They didn’t originally apply for the credit; they were just allowed to “piggyback” on the account of the person who did. If that person dies, the authorized signers aren’t generally on the hook.

5. Stop Using Credit Accounts

If you are an authorized user on a credit card account, don’t continue to use the card after the main cardholder dies. Because you’re not liable for the debt, this could be considered fraud.

A surviving spouse can ask for a card to be issued in his or her own name. It will most likely be a new card application, based on the survivor’s credit history, income, etc. (You can check your credit scores for free on Credit.com to see where you stand.)

6. Don’t Split Up All the Belongings Yet

It’s natural to think that you should immediately start giving Grandma’s antiques and jewelry away. But Credit.com expert Gerri Detweiler says it’s a good idea to wait.

Only after the estate has settled its debts should the assets be distributed. Distribute stuff beforehand, and should the estate not have enough to pay its debts, the heirs could become responsible for the debt.

7. Ask Creditors For Help

If a surviving spouse is a joint account holder on the deceased’s credit card and is having trouble paying the bills, that person may be able to work something out with creditors.

Ask for options to give you time to get organized.

8. Community Property States Are Different

If you live in a community property state, forget what you read in No. 1 above. Your rules are different.

In a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and, if you choose it, Alaska) one spouse can be liable for the debts of another, even if they didn’t agree to them or even know about them. So in a community property state you may be on the hook for the credit card debt of a deceased spouse.

9. If An Estate Can’t Pay, the Lenders Lose

Sometimes the estate has more debts than assets to pay them. If no one else can be found responsible for the debt, creditors will be forced to write it off.

10. When in Doubt, Contact an Attorney

This stuff can get complicated, especially when community property law is in place. Contact a consumer law attorney or probate attorney to get help.

Stacy Johnson contributed to this report. This post originally appeared on Money Talks News.

More on Managing Debt:

Image: Keith Levit Photography

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  • Pingback: What Happens to Your Mortgage After Death? | Best Credit Repair()

  • http://www.Credit.com/ Gerri Detweiler

    You may also want to help him set up an appointment with a consumer law attorney. If they are violating the federal Fair Debt Collection Practices Act, he may not have to pay for the attorney’s fees – the collector would have to pay them. At any rate, the first consultation will likely be free or at low cost. Another alternative would be to help him file a complaint with the Consumer Financial Protection Bureau.

  • Miss Mason

    hello my aunt passed away and has a home that is bank financed can i take over the payments or does the bank sell the house will i have to go through a credit check or put up a down payment. she has no will and no biological children but she did raise me after my mother passed when i was 11 in 1989. i know she was my legal guardian but i dont know if she took the steps to legally adopt me.

    • http://www.Credit.com/ Gerri Detweiler

      It’s impossible for me to say whether you will be able to keep her house. Who is managing her affairs/estate? If it is falling to you, I would really encourage you to talk with an estate planning attorney to discuss your options for keeping her home. Unless you are a spouse or co-owner of the home it’s not as simple as continuing to make the payments.

  • http://www.Credit.com/ Gerri Detweiler

    Ugh! Have you tried to find out who regulates this utility company? It may be your state public utility commission. I suggest you contact them to see if they can help. If they won’t, let us know.

  • http://www.Credit.com/ Gerri Detweiler

    While I’d like to be able to tell you exactly what to do, probate procedures vary significantly by state. And while you may not be able to keep the small amount of money left, if there is a creditor in line ahead of you for that money. However, there also may be legitimate expenses that must be paid before the creditor gets paid. There is some helpful information on small estates in New York here: http://www.nycprobate.com/page28.html

  • George

    My hello, my mother opened up a home equity line of credit. I was added as an authorized user on a joint checking account. I was appointed power of attorney and made transfers from HELOC to checking account for my mother. If she passes away, do I still have access to the HELOC in transferring funds to pay off bills such as funeral expenses after her passing? The heloc is only under my mothers name.only.

    • http://www.Credit.com/ Gerri Detweiler

      Do not use the funds in the HELOC after her death without consulting an attorney.

      It sounds like you are concerned about her funeral expenses. Can she prepay those now before her death? That seems like a safer and more legitimate way to go.

  • Betty

    Is there any way that I can have my name off of a mortgage with my ex-husband without refinancing? Also, do banks sometimes accept an amount below the balance if paid with a lump sum?
    Thank you

    • http://www.Credit.com/ Gerri Detweiler

      It is very doubtful you can get your name removed without your husband refinancing. Lump sum mortgage settlements are very rare because these debts have usually been packaged and sold to investors. If you need to disassociate yourself from this loan I recommend you talk with a consumer bankruptcy attorney. That may be your only option, but if there are others the attorney can discuss them with you.

      • Betty

        Thank you for replying….Another question if I may…if my ex leaves the condo to me in his will and I decide not to pay the mortgage and it goes into foreclosure, will that affect my credit score?

  • CARMEN

    HELLO, MOTHER DIED I’M THE EXECUTIVE OF THE ESTATE FINISHED PROBATE AND DEED IS IN MY NAME MOM HAD HAD A LINE OF CREDIT ON THE HOUSE BUT BANK WILL NOT PUT IT IN MY NAME SAID CREDIT IS NOT GOOD ENOUGH 700 CREDIT SCORE. LIVE IN WASHINGTON DC.

    • http://www.Credit.com/ Gerri Detweiler

      Have you tried another lender? It’s hard to know exactly what the problem is but there may be another lender willing to finance it for you.

  • Shey

    Hi,.
    My Mom died owing state taxes. I have received the last SS check as beneficiary. I assume I can keep that money in lieu of putting into her estate? Her other assets like $ from car sale went into the estate.
    Thanks

  • http://blog.credit.com/ Kali Geldis

    Hi Dolly —

    We actually just wrote about this issue last week:

    http://blog.credit.com/2015/03/the-pre-recession-housing-problem-thats-about-to-slam-homeowners-110575/

    Even though your name isn’t on the account, you should be able to get access since you own the title to the home with the loan and the loan’s account holder has passed away. Reach out to the lender and figure out next steps for the loan. You may be able to address the payments issue with some of the options explained in the story I linked to.

  • http://www.credit.com/ Credit.com Credit Experts

    Karla —
    Our condolences on the loss of your father.

    This post may help you to locate the current owners of your late father’s debts. How to Figure Out Who Your Debt Collector Is

    • Karla Stover

      If we are unable to locate the collector what do we do with the funds?

      • http://www.credit.com/ Credit.com Credit Experts

        Karla —
        We’re not lawyers, nor are we familiar with estate laws in every state. Checking with a lawyer who is familiar with your state estate and consumer laws seems like a wise course. We cannot recommend that you take money that you believe to be owed to someone else.

  • http://www.Credit.com/ Gerri Detweiler

    I am sorry Hanah – we don’t have the expertise to answer these questions. We suggest you consult a tax professional in your area. This is a significant amount of money and you’ll want to make sure it is handled properly.

  • Sristy

    Hello,
    I lost my father 9 June 2014,before he died he had an fire incident in bank warehouse, on 31 may 2014,he wasn’t able to tolerate this,he had too many bank loan,n there is few stocks of good left yet,so we are sealing those goods and paying bank debts,but now the bank is forcing us to take laibality , insurance on fire money is not adjusted by the bank yet,if we take laibality than we need to pay a huge amount monthly,which is not possible for us,n if not than my dad have given morgage to back,which is so many,and we are planning to stop the account by sealing our others property,like we won’t bear any installment just we ll give all amount together,but we ll need time to sale but the bank is not understanding, and now he is not giving us the good to sale.

    • http://www.Credit.com/ Gerri Detweiler

      We are sorry for your loss. Unfortunately we don’t understand your question. Have you spoken with an attorney? It sounds like that should be the next step.

  • http://www.Credit.com/ Gerri Detweiler

    Amber – we are working on your question.

  • Sadie

    I have a friend who has no family. She has named me as the beneficiary on life insurance, 401k, etc. I’ve been added to her checking and savings accounts. She purchased a 2012 SUV and says death benefits are included in her payment so that when she dies it will be paid off and become mine. I’m trying to help her as much as possible but want to know 1) will there be taxes due on everything I’m listed on as beneficiary? 2) 401k – can that be rolled into my current one? 3) what about the car? 4) what about her apartment, utilities, etc. and 5) who will do her taxes etc.?

    • http://www.Credit.com/ Gerri Detweiler

      Does she have a will and has she named you as executor? The will determines who goes property without a named beneficiary. If you are her beneficiary in her will then whether there will be taxes depends on the size of the estate but unless he has a large estate it’s probably not an issue.

      The executor will need to file a final tax return for the estate.

      Generally the life insurance and 401(k) can pass to named beneficiaries directly without going through probate.

      Her apartment lease and utilities will likely be terminated on her death. The executor will likely need to provide a death certificate. If there are balances owed, the landlord and/or utility companies may try to collect from the estate if there is one.

      With the IRA generally the named beneficiary can roll it over into an inherited IRA without paying taxes, but once the beneficiary starts withdrawing those funds they will be taxable. A Roth IRA is different. though, since those funds were put in pre-tax.

      These are very general guidelines so please don’t take them as tax or financial planning advice. It sounds like your friend hopes to leave you as much as she can, so it also doesn’t sound like she would object to you asking her these questions so that her affairs are taken care of as she wishes after her death. You may want to make an appointment with an estate planning attorney or financial planner to make sure everything is in order and that you understand your responsibilities and the financial implications.

  • http://www.Credit.com/ Gerri Detweiler

    It sounds like you hired an attorney to help so you may want to ask them whether it is worth pursuing. It may depend on whether the bank would be liable for damages as a result of their actions. If not, you could at least consider filing a complaint against the bank with the Consumer Financial Protection Agency and/or the bank’s regulator.

    Our condolences for your loss.

  • http://www.Credit.com/ Gerri Detweiler

    It would not hurt to get a couple of real estate agents to give you an assessment of the value of the property. You shouldn’t have to pay for that, and it may help you understand what you’re looking at. As far as the rest of your situation, since you are going to be disposing or her property one way or the other, it would be a good idea to consult with an estate planning attorney to find out what you need to do. Probate procedures vary by state and you want to make sure you follow the proper procedures.

    Our condolences for your loss.

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