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Unfortunately, credit card debt does not simply vanish when we are no longer around to pay the bills. Instead, this debt is considered part of our estate and then managed by an estate executor. For those interested in knowing more about what happens to credit card debt and any accumulated credit card rewards after someone passes on, we’ve put together a guide.
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First Steps for Handling Credit Cards After Death
The executor of a deceased person’s estate will usually have a long list of people to notify of a person’s passing and, when appropriate, accounts and outstanding balances to close out on the behalf of the deceased. Because credit card debt is considered unsecured debt, it is among the last on the priority list of debts to be paid from whatever assets exist in the estate.
Those responsible for an estate should notify credit card companies as quickly as possible so no additional charges are made on the account. This will help protect against recurring automatic charges as well as potential fraud in the event a credit card is stolen.
Notifying the Credit Card Companies of Death
Most credit companies and banks will want to see a death certificate in order to close out an account, then handle debt collection accordingly. We recommend executors of estates obtain multiple copies of death certificates so as to be prepared when a copy is requested — by credit card companies and other lenders.
An important reason to notify credit card companies and lenders as quickly as possible of a recent passing — though it can seem overwhelming during an emotional time — is to protect loved ones against later financial and legal issues regarding any outstanding debt. This can be especially important if surviving loved ones hold joint accounts with the deceased as the bank or credit card company will either close out the account or make the surviving account holder the primary or sole account holder.
If this is put off for too long, survivors’ credit scores can be affected before realizing it if they continue to use a joint card without paying off existing balances on the account.
Stop Using the Card
If you are a loved one of the deceased and hold a joint card, it is important you do not use the card until you have notified the card company of the situation. This applies for any card the deceased was the sole-account holder for, as any additional charges made or interest accumulated will likely be taken out of the estate before heirs receive any assets as inheritance. Even if you are an authorized user of a card, it is often technically fraudulent to continue using it after the primary cardholder’s death.
Notify Recurring Charges
It is also important to keep track of whatever recurring charges the deceased may have associated with credit accounts. This could include monthly subscriptions or installments collected at regular increments. All charges should cease once official notice of the death has been given, so extra copies of the death certificate might be useful in these cases as well. Utilities paid on a credit card, for example, if unpaid may lead to water and power being shut off to homes.
Protection Against Identity Theft
Deceased card holders are common targets for identity theft. Thieves often search online for obituaries and recent death records in the hopes of snagging a name with unprotected data or active financial avenues to hijack. Though an ugly thing to contemplate, it is best to be wary of this and not leave loved ones vulnerable to fraud during an already delicate time.
In addition to contacting credit card companies directly to close out a deceased person’s accounts, family members or the executor of the estate can also help prevent fraudulent account use by contacting one of three main credit report bureaus — Equifax, Experian and TransUnion — to freeze the deceased’s credit. This relatively-easy-to-take action will make it so identity thieves cannot access the private credit history of the deceased, nor can they open up new cards or accounts under the deceased’s name in the future. After this initial step is taken, the credit bureau will most likely request either a death certificate or the Social Security number (SSN) of the deceased, as well as information on all active credit accounts to be closed out.
Where Does Existing Debt Go?
While debt does not disappear into thin air when we die, it is also not something loved ones must worry about directly “inheriting.” Family members are generally not held responsible for paying off debt of the deceased, especially not from their own pocketbooks. The division of an estate’s assets, however, occurs before any allotted inheritance is passed on to heirs. This can, in some cases, lead to family homes or other assets heirs expect to receive being sold to pay debts.
If your debt exceeds the assets left behind in your estate, creditors will be likely to pursue inheritors depending on the circumstances of inheritance and the financial relationship to you. In some states, for instance, children can be held accountable for their parents’ medical bills post mortem — this is called filial responsibility.
How Can You Protect Certain Assets from Creditors?
Because credit card debt is unsecured, it is usually not the highest priority for creditors. Depending on the state of residence, the statute of limitations on how long creditors can pursue payment after death will vary. For example, in the state of California, according to the California Code of Civil Procedure Section 366.2, the statute of limitations is one year after the debtor’s death. In New York, creditors have only seven months after an estate fiduciary is appointed to file a claim against an estate in debt.
Beneficiaries of estates do need to keep in mind that should an estate have insufficient funds to pay off credit card debts, creditors may target other assets such as joint accounts. Secure assets not pursuable by creditors may include retirement accounts, life insurance proceeds, living trust assets, brokerage accounts and, depending on the legal circumstances, homes.
Know Your Rights
Though credit card companies may contact loved ones to collect information when debt cannot be satisfied, lenders cannot legally force you to pay remaining debts. According to the Fair Debt Collection Practices Act (FDCPA), creditors cannot coerce survivors of a deceased debtor into paying off debts that they themselves are not financially responsible for.
Make sure before paying anything to debt collectors that you and your loved ones are educated about your specific state’s set of laws on different types of debt. This applies to everything from paying off debt via the estate’s assets to the rarer cases where loved ones, family or other connections must shell out payments from their own funds.
Credit card companies should always present a Proof of Claim when requesting payment from the estate. If creditors pursue debt by contacting surviving inheritors, it might be helpful to seek the help of an attorney in order to organize the proper documents, know which documents to request for your own records and to walk through the sequence of debt payment in the most efficient way. Be especially mindful if you have joint accounts with the deceased, as your death benefits could be targeted and your own assets linked to such accounts could be the first to go.
Where Does Existing Credit Go?
Once one or all three of the credit bureaus are notified of a cardholder’s death, the credit file is not simply canceled — it still serves the purpose of protecting the deceased’s identity. While the credit cards of the deceased cannot legally be used anymore — unless of course the name of the primary account holder has been changed to an authorized beneficiary — the deceased’s credit score is valuable documentation tied to his or her di lei SSN and other assets. In some cases, these assets could even include points and rewards accumulated on the account.
Transferring Points and Rewards
Depending on the credit card company and the types of rewards programs a person uses, some points can be transferred or reinstated to a new account holder after death. Not all companies have policies for point transfers, so be sure to check to see what specific options are available before deciding exactly what to do with the deceased’s account.
American Express, for example, will reinstate points to a new account or allow them to be redeemed by the estate, but if the credit card account is canceled beforehand, the points are forfeited. Bank of America, Chase, Citi and Discover all have policies for how to redeem and / or credit points back to the estate upon presenting proof of death. Wells Fargo does not transfer points or rewards after death and all points are forfeited upon account closure.
An executor may be able to request the transfer or cash out miles and other travel rewards such as hotel or airline points from a deceased person’s accounts. This depends on the program and whether a card issuer or program allows transfer beneficiaries.
Alaska Airlines, American Airlines and United Airlines all provide mile transfers to beneficiaries as long as proof of death is presented and JetBlue offers a Points Pooling program that allows up to eight members to share points. Upon death of one member, points earned can be shared with the other seven members. Hotel programs such as Hilton Honors, IHG Rewards Club, Marriott Bonvoy, Radisson Rewards and World of Hyatt all offer options for transferring points. These programs generally require proper documentation and have a limit of one year following the primary account holder’s death.
If you have earned a lot of points and think it would be worthwhile to pass them on to your estate or specific loved ones, the best thing to do is to name your desired beneficiaries for these accounts. This will help prevent automatic points forfeiture and will also help these loved ones obtain easy access to your accounts if they need to.
Handling finances for those recently deceased is a complex and often difficult process that requires educating yourself about the intricacies of post-mortem debt.
While it might be a difficult and uncomfortable topic to plan ahead for, it is an important aspect of responsible estate preparation to smooth the way for those you leave behind.
The kindest thing we can do for our successors is to prepare the right documentation, provide easy access for those who will need it and make the necessary arrangements for your estate to be allotted appropriately and sufficiently. Try to stay on top of your debt, redeem your rewards semi-regularly so as not to risk losing a significant value in points and protect your identity and credit score.
Frequently Asked Questions (FAQs)
Can you go to jail for not paying inherited credit card debt?
It is unlikely creditors will continue to pursue inheritors of an estate with insufficient assets to pay off credit card debt, but even if they do there are few grounds upon which beneficiaries are held legally responsible for debts incurred during the deceased’s lifetime. This isn’t to say it can’t happen or that creditors won’t try.
What is the difference between unsecured and secured debt?
Secured debt is usually attached to collateral property in order to support the loan. The most common examples of this would be a mortgage on a house or a car loan. Unsecured debt has no collateral and is therefore more often waivable. This type of debt includes credit card debt, student loans and personal loans.