After you pass away the bills that you owe are no longer your responsibility. However, it is the responsibility of your estate to pay those with credit card balances. Another person cannot be made responsible to pay your bills, but you could end up getting into a position where your estate owes a credit card company, bank, or other financial institution a certain sum of money to ensure that your credit history is clean.
In most cases, your spouse will not be responsible for paying any credit card debt. Rather, any credit card debt that you owe will have to be paid out of your state property before any beneficiaries can receive money. The assets of your estate must be sufficient to cover any debt owed. Otherwise, the debt simply would not be able to be paid and your beneficiaries or heirs would not be able to receive any money or assets under the terms of your estate or will.
In today’s blog post from the Law Office of Bryan Fagan let’s take a closer look and see what happens to your credit card debt once you pass away. In the alternative, if you were reading this blog post and are married to or acting as the executor for someone who has just passed away, then you can figure out what you need to do as far as handling matters associated with your loved one passing. Having a plan and sticking to that plan is important and can be the difference between success or failure in the realm of getting past the logistical and financial aspects of the passing of your loved one.
Who is responsible for paying credit card debt after you die?
After you pass away any debt that you leave behind must be paid before any assets are distributed to your heirs, a spouse, or beneficiaries under your will. Debt is paid out of your estate which means the total of all the assets you owned at the time of your death. Whoever you named as the executor of your will would use the assets in your estate to pay your outstanding debts. If you passed away with a will the executor would be named and appointed the executor officially by a probate court judge. On the other hand, if he did not pass away with a will then whoever attempts to probate your estate would be named as the administrator. At that point, the administrator or executor went up the legal authority to either execute on the terms of your will or begin to pay creditors as your estate administrator.
It may be the case that you pass away with more debts than assets. The term for when you’re a state has more debts than assets is insolvency. There are several factors that you must consider about whether your family members will have to pay your credit card debt after you pass away.
The first situation that I would have in mind relates to whether your credit card has a joint cardholder or account holder. For instance, if you and your wife were both named on the credit card account and both utilize the account for personal purposes then she would be responsible for the debt after you die. You are classified as a Co-borrower or co-signer under the terms of that credit card. The credit card company will check both of your credit reports when determining whether to issue you credit during the initial application phase therefore, both you and your spouse would be equally responsible for paying the balance of the credit card at any time including after your passing. The only difference would be only your spouse would be alive to be able to pay the bill. You should check with your bank or financial institution to determine whether you have a joint account. It is more likely that one of you is named as an authorized user on the other person’s credit card account. The difference between the two scenarios could be substantial for your family.
If you are merely an authorized user, you can still use the card and you would still receive a card with your name on it. It would only be you as the primary account holder who would be responsible for paying the balance each month. So, if your spouse was an authorized user of your credit card account, she would not be personally liable to pay the bill after your passing. The credit card company will be responsible for checking in on you to make sure that you have passed away and then attempt to collect money out of your estate to satisfy the balance on your account.
One factor to keep in mind, however, is that Texas is a community property state. The significance of this is that Community property states typically hold you and your spouse responsible for one another’s debts that are incurred during your marriage. There is a chance that you may be responsible for paying your spouse’s credit card debt after their passing even if you never use the card or if the money spent on the card never went towards any benefit to you. You should check with a probate and estate planning attorney to discuss this subject in greater detail, however. You may be running into a certain situation where, despite Texas being a community property state, you would not be responsible for the credit card debt of your spouse.
What to do after a spouse passes away about their credit card debt
If your spouse passes away with a balance on their credit card that means that he or she owes money in the form of a debt to that credit card company. In that case, you should take the following steps to ensure that the credit card debt it’s handled correctly, and their estate does not incur penalties or undue financial burdens because of not attending to the matter in the most effective way possible.
The first thing that I would point you towards is that if you are an authorized user on the account, you should stop using the credit card immediately. A distinction that I would draw is that if you are a joint account holder on a card with your spouse you can continue to use that card. However, if you are using the account as a non-account holder then you should stop your use of the card. Be aware that if you use a credit card after the primary cardholder is passed away then this is considered fraud. It does not matter if you are an authorized user. You have no legal right to use the card any longer because the primary count holder has passed away leaving no one left to pay the balance. If you do not have a debit or credit card of your own it would make sense for you to go ahead and open an account for yourself before the passing of your spouse. I understand that you cannot predict when your spouse will pass away but if you have any reason to believe that he or she has a specific timetable when you expect them to pass away this will be a step that you could take in preparation.
Next, you should make a list of your spouse’s credit card accounts. You may be in a situation where you do not know how many accounts your spouse had or even the details of their financial life. Spouses are more and more keeping their finances separate from one another. So, you may not know much if anything bought the finances of your spouse or how they conduct themselves on a day-to-day basis. Things like debit cards, credit accounts, and even loans may be something that you’re not aware of due to how you run your family.
After your spouse passes away there are ways for you to learn about all their financial goings-on. The most direct route to learning about their financial realities is to request a copy of their credit report. On the credit report, you can check and see not only their credit score but more importantly any outstanding loans and their balances. It does not pay for you to put your head in the sand and ignore any balances or open credit accounts. These entities we’ll find you sooner rather than later and we’ll come looking for the money that is owed to them through your deceased spouses’ estate. Therefore, you can begin to develop a plan by acknowledging these folks once your loved one passes away.
In fact, instead of waiting for the credit card companies to contact you, you can contact them the first period if the credit card is solely in your disease fastest name you can ask to close out the account. You may need to provide them with a copy of the death certificate to do so. On the other hand, if you have a joint credit card account then you can tell the credit card company that your spouse is now deceased. You can either keep the account open in your name only or close out the account. The terms of the account may change given that you could become the account holder. This is something you should ask them about before agreeing to keep the account open.
Next, you should notify the three consumer credit bureaus. The credit card companies that your spouse had accounts with will report the death of him or her to the credit card bureaus. However, this may not happen immediately. You can report the death to these three major critic bureaus yourself. Those three bureaus are Experian TransUnion and Equifax. Even though your spouse is no longer living but you do not want to run into is a situation where someone tries to apply for credit or in the name of your spouse or tries to steal their identity.
To report their passing may require some additional steps depending on the specific credit Bureau. Your deceased spouse’s Social Security number Anna copies of their death certificate are usually all you will need to show them that your spouse has passed away. If you have been appointed by a court as the administrator of an estate or as the executor of their will then you will need that proof as well. This will give you the authority to make decisions on behalf of the estate.
Bear in mind that if you have a jointly held credit card account with your deceased spouse that you will need to make timely payments to satisfy that obligation. Just because your spouse has passed away does not give you a grace period or anything like that with these credit card companies. That may seem cold and uncaring, but it is the reality of your situation. You should notify the credit card company when your spouse passes away, but you should still be prepared to make payments according to the terms of your credit card contract.
One of the reasons why you want to avoid missed payments on the credit card is that missed payments can negatively impact your credit score. You may be in a time of transition after your spouse passes away. For example, you may want to move, take out a loan to start a business, or be generous and give money, when possible, to friends, family members, or other charitable organizations. Having a credit score that allows you to access lines of credit is undoubtedly a good thing for you currently. Although it may feel like your life has come to a screeching halt after the passing of your spouse this will not always be the case. You will still want to take care of yourself from a financial standpoint as much as possible and care for your credit score, he is something that many people care a lot about it is not something you should necessarily ignore when your spouse passes away.
For many people, you can become completely last after your spouse passes away. What seems like a day or two in your normal life may end up being a couple of weeks when your spouse passes away. For that reason, it would not be unrealistic to think that you may lose track of time and failed to pay a bill here or there. To avoid a situation like this you can set up an automatic bill payment scheduler for your credit card. At least paying the minimum payment for the initial one or two payments back for the passing of your spouse can save you a lot of time potentially help ensure that we do not hurt your credit score or your overall financial life by missing a payment during this difficult and oftentimes traumatic period of your life.
Are there assets that are protected from creditors?
One of the most common questions that are asked of the attorneys with our office is whether you will have to pay a credit card debt out of your bank account when the assets in your spouse’s estate are not sufficient to pay for all of the debt owed on that credit card account. It can be quite a shock to find out just how much debt your spouse owes on a credit card account. It would be adding insult to injury to have to pay for a debt of your spouse right after you lost him or her. Speaking with an experienced estate planning and probate law attorney in Texas can help you learn more about your obligations to perform this type of action.
Debts like mortgages and car loans are secured by collateral. Therefore, these types of loans are known as secured debts. On the other hand, a credit card debt is an unsecured debt because no property secures you the I’m out of money that you owe. Any money owed on the secured debt will be first in priority versus unsecured debt like a credit card account. If your spouse’s estate does not have enough money to pay all of their debts, then the laws of Texas will determine which creditor is given the highest priority when it comes to paying back the note. In a situation like this, it is not uncommon to see unsecured debt not paid at all. Life insurance proceeds, assets held in trust, brokerage accounts, and retirement accounts are also protected from creditors in typical situations.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas estate planning law as well as about how your family circumstances may be impacted by the filing of a probate case. Thanks for your interest in our law office and we hope you will join us again tomorrow as we continue to share information about the world of probate and estate planning law.