Two years ago, my partner’s father passed away. Unfortunately, he had never been a good money manager and when he died, there were credit card debts, medical bills from his final hospital stay, a mortgage and auto loan.
My partner had been named his agent through a Power of Attorney (learn more about POAs at “Disability Planning before Crisis Strikes”), and had been helping to get his finances on track for the past year. Soon the phone began to ring and our mailbox was stuffed with his bills. “Paying off your father’s credit card bill is the right thing to do” the representative from Chase began. Sometimes the rep would suggest my partner SHOULD PAY THE BILL because she was legally obligated. We knew this wasn’t true because we had spoken with 2 probate attorneys to get an assessment of the situation. However, that didn’t stop the credit card representatives from trying to pass off inaccurate information.
Now I don’t want anyone to get the wrong idea. I am not saying you will never owe money for your loved one’s debts when they die. Whether or not you do depends on the laws where you live. But in her father’s case we knew the credit card reps were just plain wrong!
The general framework:
Typically, credit card debts of your deceased loved ones are the responsibility of the estate, not the heirs or family members. Credit card companies are required to make a claim to the estate once a probate begins. All estate debts are paid in a priority order with credit cards at the bottom of the pile. If there are no assets in the estate, or not enough to cover the debts, the outstanding debts are usually “written off” by creditors.
Protections offered by the FDCPA:
The Fair Debt Collections Practices Act (FDCPA) offers certain protections to family members who are contacted by creditors for others’ debts. It is true that creditors or collection agencies may call heirs about the debts. However, all calls MUST STOP once the name of the person handling the estate (personal representative) is given to the creditors. Also, creditors are prohibited from claiming family members owe the debts when they don’t. There are stiff penalties for violations of the FDCPA and relatives who are being harassed by creditors should contact an attorney at www.naca.net. Attorney fees will be paid by the violator so do not hesitate to use this valuable resource if you need it.
So who is liable?
- Let’s use the example of a married couple. When the wife dies, her husband is NOT RESPONSIBLE for her debts as long as she was listed as the only user of the credit cards. The same is generally true if he was simply listed as an authorized user. If the husband is listed as a joint account holder, however, he IS LIABLE for any unpaid joint debts.
- Beware of a major exception to this liability rule. For married couples who live in “community property” states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) both spouses may be legally responsible for accounts opened under just one spouse’s name. In addition, the individual debts of one spouse may also appear on the other spouse’s credit record which can affect each other’s credit scores. It is best to talk with an attorney about your own circumstances if you live in one of these states.
- Sometimes children become involved with their parents’ debts due to the best of intentions. I read about one instance where an adult son became an authorized user on his mother’s credit card to help her handle her affairs before she died. Although he was not liable for the credit card balance when his mother passed away, the unpaid debts were reported on his credit report which resulted in him being denied a home refinance two years later.
- Let’s say you are neither an authorized user nor joint card holder. If you use the credit card, you can and likely will be held liable for the debt. I learned of another instance where a wife used her deceased husband’s credit card to charge the funeral costs. The creditor sued her for the entire balance of $25,000 claiming she was liable for the full debt even though she only charged $5000 for the funeral. Eventually, her attorney was able to settle the claim for $4,000 + attorney fees of $2,000.
Who gets paid first?
As mentioned above, each probate follows a priority to pay off the estate’s debts. Although the precise order may vary among different states, generally debts like taxes, mortgages, Medicaid reimbursement to the state, probate administration costs, and funeral costs take priority over unsecured debts like credit cards.
Smart tips to follow:
There are a number of simple yet proactive steps to take when a loved one dies and still owes credit card debts.
- Contact the three credit bureaus (Equifax, Experian, and Trans Union) to inform them of the family member’s date of death.
- Ask each credit bureau to close the person’s credit file. This helps to keep the file information accurate, as well as stave off potential identity theft.
Credit Card Companies
- Cut up the credit cards and return them to the issuing creditor. Inform them of the date of death; just so you know, you may also be asked to provide a copy of the death certificate.
- Ask each credit card company if there was insurance for the credit cards that would pay off the balances at death.
When a loved one dies, family members are grieving and vulnerable. At such a difficult time, no one should have to endure a creditor harassing them. By knowing your rights, you can protect yourself and avoid being talked into paying someone else’s debts you never owed. Give us a call at 888.577.2227. We are here to help you find peace of mind.