What Happens to Your Credit Card Debt When You Die?
You can't take your money with you when you die—but what happens to your credit card debt when you die? And if you are the heir of someone who has accumulated a lot of credit card debt, what is your responsibility for that debt if your loved one dies?
The answer depends in part upon whether the credit card was in the name of one person, or was a joint account. Many spouses have joint credit card accounts. If you and your spouse jointly signed for a credit card account, and one of you dies, the other continues to be liable for account debt, even if it was incurred by the spouse who died.
However, not everyone who uses a credit card is a joint signer on the account. It is possible that a credit card holder can make someone an authorized user on the account without making them a joint signer. It's important to know whether you are a cosigner or authorized user of the deceased's credit card.
How Credit Card Debt is Dealt with When a Cardholder Dies
Now you know that as long as you didn't co-sign for the credit card, you won't be personally liable for the credit card debt of your deceased loved one. But that doesn't mean that the debt just goes away. Instead, the debt may become the responsibility of the decedent's probate estate.
In Ohio, creditors have six months in which to make a claim against a deceased person's probate estate. If they fail to do so, they are prevented from collecting that debt. Oftentimes, the easiest way to ensure that a claim will not be made is to simply not open the probate estate until after six months from the date of death.
If creditors do file a claim, they are paid according to a payment order set forth in Ohio law. Credit cards fall into the bucket of "unsecured debt;" in other words, there is no collateral (or security) for the debt. Unsecured debt has lowest priority to be paid. If there are not enough assets in the estate to satisfy all the deceased's debts, credit card debt or other unsecured debt may go unpaid.
How Credit Card Debt Affects Inheritance
Even though credit card debt and other unsecured debt may rank lower than other creditors when it comes to priority of payment, that debt still must be paid before heirs can receive their inheritance. In that sense, even though you may not be legally responsible for another person's credit card debt, as a practical matter, you may end up paying for it if estate funds are used up to satisfy creditors.
However, if you are a surviving spouse in Ohio, there is good news. Ohio probate law grants surviving spouses and minor children a combined $40,000 support allowance which comes off the top of estate funds before creditors are paid. This allowance is also available to minor children if there is no surviving spouse.
Bear in mind also that creditors can typically reach only the decedent's probate estate. So if the deceased had a living trust or life insurance policy of which you are the beneficiary, those assets pass outside of probate and cannot be reached by credit card companies seeking payment of the deceased's final debts.
Just because a creditor isn't entitled to payment doesn't mean that they won't try to get it, however. If you are a surviving spouse or child of a deceased person and have no legal responsibility for their credit card debt, the Federal Trade Commission says it is illegal for credit card companies to hound you for payment. If this happens, contact an experienced Ohio probate attorney for guidance.