When someone you love dies, one of the first things you need to deal with is credit card debt after death. But it’s essential to understand how debt affects the deceased and their estate to protect yourself and avoid legal penalties.
Notify Creditors and Credit Bureaus
To begin, you’ll need to notify your creditors and the credit bureaus of your loved one’s death. If a creditor or credit bureau is notified after you’ve paid a bill, they can still try to collect payment from the estate. To ensure that your loved one’s name has been removed from their accounts as quickly as possible after their death, contact each company individually with a written and verbal notice about their passing. This will prevent any collection notices from being sent out in error or confusion about who should be contacted for further information regarding debts owed by the decedent.
Stop Using Credit Accounts
In the U.S., credit card debt does not pass to beneficiaries after death. The same is true for mortgages and other loans, which the estate can pay off once it’s probated. Any accounts held under your name will be closed or canceled, and any remaining balances will need to be paid off through funds in your estate. To ensure this happens as smoothly as possible, you’ll want to notify creditors and credit bureaus of your loved one’s passing so they know what happened without contacting family members who may not know how long ago their relative passed away.
Keep the Estate Intact
When you create a Will, it is vital to keep the estate intact. This means avoiding probate, creditors and taxes. A Will allows you to decide who gets what before your death. You can also avoid lawsuits by using a trust for your assets if there are competing claims for those assets among family members or other parties with an interest in them after your death. If there is no Will when someone dies intestate, then state law will determine who gets what and how they receive those assets upon death.
Negotiate with Creditors
- You could negotiate with creditors only if the debt was in your spouse’s name. You may want to keep the debts and use them as an inheritance for your children or other beneficiaries.
- Negotiate with creditors if you want to pay off the balance over time. The creditor may agree to a payment plan that stretches out the repayment over years so that it becomes manageable for you and doesn’t burden heirs with an unexpected bill upon inheriting their inheritance.
- Before pursuing this option, ask about any recent changes in terms of interest rates on outstanding debts.
Be Aware of Community Property States
You may have heard of community property states, and you’re probably wondering what exactly they are. For example, a community property state is one where married people are legally defined as owning all assets acquired by either spouse during the marriage. This means that any debt incurred during the marriage will be considered a joint obligation between both spouses; if someone dies while owing money on a credit card or mortgage, their estate will be liable to pay off those balances.
Another tip from SoFi experts is, “The best way to keep your loved ones from dealing with your credit card debt is to responsibly manage your credit card balances while you’re alive. For instance, you can avoid spending up to your credit card limit each month to make your balance easier to pay off.”
You must be aware of your legal rights and responsibilities if you’re dealing with credit card debt after death.