Managing Debt After Death: Things You Should Know
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.
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.
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:
P.O. Box 2000
Chester, PA 19022
P.O. Box 2002
Allen, TX 75013
P.O. Box 740260
Atlanta, GA 30374
Remember to send certified letters when corresponding with credit bureaus or individual companies and keep copies.
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.
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
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.
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.
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.
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.
This stuff can get complicated, especially when community property law is in place. Contact a consumer law attorney or probate attorney to get help.
Things You Should Do Immediately after a Loved One Dies
When a loved one passes away, there are many issues the survivors need to navigate during an already extremely difficult time. Having to make funeral plans, notify friends and family and start the grieving process can be overwhelming. Unfortunately, there are also several critical financial items that need your attention.
The very first step is to contact the Vital Statistics office in the state in which the death occurred and obtain several certified copies of the death certificate. You also may be able to request it through the funeral home. You will need to order enough copies for each of the entities listed below. Some of the recipients may accept a faxed copy, but most will require an original certified document. There may be a charge for each copy requested.
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.
If the decedent had a will, it probably named an executor who is in charge of carrying out final wishes and distributing property. If the person died without a will (also known as “intestacy”), state law typically provides a list of those who could serve in this capacity. It is important to note that since property transferred at death is governed by state law, the details will differ from state to state. If you are named executor, you should obtain letters testamentary, which provide proof that you have a right to handle the deceased’s financial affairs during probate. You may want to consult an estate attorney to help you through the probate process.
Once you receive the death certificates and the letters testamentary, you should contact any insurance company where the decedent had a policy. This may include employer-sponsored plans, individually owned policies, mortgage cancellation plans and policies issued by associations, banks and credit card companies. Some of these policies, especially the last three, may only provide benefits if the death resulted from an accident. Other policies may provide an additional benefit for accidental death.
You will need to notify all savings and investment companies where the decedent had an account. This includes both individually owned accounts and joint accounts. It is critical to understand that the account will most likely be frozen once the company has been notified of the death, so plans should be made in advance to prevent any hardship this might cause. You will have to provide a death certificate and letters testamentary for each account and then set up new accounts in the names of the heirs in order to receive the assets. You should also contact any pension providers to determine whether the pension benefit includes survivor payments.
Contact mortgage companies and other loan providers, including credit card companies. Since these debts are now obligations of the deceased’s estate, they will have to be paid off by the assets of the estate. One exception is if the decedent was married. In that instance, the responsibility may transfer to the spouse.
It is also a good idea to contact the credit bureaus and report the death to prevent identity theft after their passing. The executor should also request a copy of the deceased’s credit report.
Contact utility companies and other service providers to change or discontinue service. Some services, like cable television, Internet and telephone lines, can be canceled immediately, while it may make sense to delay others, like electric, water, gas, and lawn care, so that the home can be properly maintained. It might be helpful to look over bank and credit card statements to identify other, less obvious, monthly recurring charges, like gym memberships, home security systems and club membership dues.
Finally, notify appropriate government agencies to start and/or end benefits. The surviving spouse or children may qualify to receive a one-time $255 death benefit from the Social Security Administration. Additionally, survivor benefits may be available for children under age 16 (or disabled children of any age) and to spouses or ex-spouses (if they were married to the deceased for at least 10 years). Interestingly, both a spouse and an ex-spouse may be able to qualify for unreduced survivor benefits at the same time.
If the deceased served in the armed forces, there may be Veterans Administration survivor benefits payable to the spouse and/or the children of the deceased veteran. While some benefits require that the death occur while on active duty, others just require service. Since these benefits are fairly complicated, you should contact the VA to determine if you qualify.
Facing the death of a loved one can be a daunting journey. Knowing what to do with your finances when it happens can at least bring some comfort and order to the survivors.