If you're worrying about credit card debt, and especially if the bills are mounting, a chilling thought may come to you. "What happens to my credit cards after I die?"

Key takeaways

  • The estate generally takes over when someone dies with credit card debt
  • Authorized users are usually NOT responsible for leftover credit card debt
  • Credit card rewards may still be accessible or transferable
  • Call to cancel the card and have documentation ready to submit to ease the process

Well, there are a number of things to consider including existing credit card debt, authorized users, credit card rewards and more.

What happens to credit card debt after you die?

The non-complicated answer is that your credit card debt will probably be written off by the credit card issuer, but it can be a bit more complicated than that. The more complicated answer? The credit card companies could go after the money you leave behind, the money in what everybody calls your "estate," which may sound funny to you if your estate is, say, a two-bedroom apartment or condo or maybe even a fancy house that's pretty nice but hardly a mansion.

Aaron Leak, founder of ECL Private Wealth Management in Rockford, Ill., explains it this way: "When you die, any debt you leave behind usually must be paid before any assets are distributed to your heirs or surviving spouse. Debt is paid from your estate, which simply means the sum of all the assets you had at the time of your death. The executor of your estate uses the assets in your estate to pay your outstanding debts. If you have more debts than you have assets, your estate is insolvent."

OK, but what happens if my estate is insolvent - and can't pay off my credit card debt?

"If an estate is insolvent or doesn't have enough to pay all of the creditors, there is nothing a creditor can do about it," says Michelle Creeden, a New Hampshire licensed attorney at a multistate law firm, the Law Office of Fox, Kohler and Associates, PLLC tradename National Legal Center.

Some of Creeden's specialties in law include consumer protection, debtor rights, Fair Debt Collection Practices Act and Fair Credit Reporting Act enforcement and the taxation of estates and trusts.

If there is money, or some money to pay off credit cards, "courts would divvy up the estate to creditors and whatever is left unpaid is written off," she explains.

Some of how debts are paid off is determined by state law, according to Leak. If you're really concerned, he suggests hiring an estate attorney to advise you.

But chances are, you will not have a big battle over your deceased father's or wife's credit cards, according to Creeden.

When it comes to credit card issuers, "most creditors write off uncollectable debts to get a tax credit," she says.

Another point that may make your family breathe a sigh of relief after you are gone. If you left some money behind, and the courts were involved, "expenses like burials and filing fees are paid in full first as priority creditors, so the family can cover end of life costs without worrying about creditors," Creeden says.

So it always works out like that? Credit card companies won't come after my family if I leave debt behind that can't be paid by my estate?

Credit card issuers almost certainly won't, but don't be surprised if debt collectors ring you up for a little chat. For instance, if you had credit card debt that went to a debt collector before you passed on, your family could still get calls. They have no legal standing to collect that debt, though, as long as your family members didn't co-sign for the debt on the credit card.

If you are a co-signer for a credit card (this is different than an authorized user, which we'll discuss below), even if you didn't personally put debt on the card that was used by your late husband or wife, you do, unfortunately, owe the money on the credit card. That's because, as a co-signer, that debt is officially your debt.

But bottom-line - if that credit card debt is not yours, you have no legal obligation to pay the debt collector. The debt collector who is trying to guilt you into paying up, knows that.

Could my life insurance go toward paying off my credit card debts?

It could, if your beneficiary wants to use the money toward that, but your life insurance payout isn't going to your estate, which probably would be legally obligated to make payments to the credit cards. Instead, your life insurance payout is going to your named beneficiaries. If a beneficiary that receives life insurance money is a co-signer on your credit card, then, yes, he or she might want to use some of the life insurance money to pay off any credit card debt.

Are authorized users responsible for the debt on a credit card after someone dies?

Generally, no. If you're a family member who is allowed to use the card, but you were an authorized user and not a co-signer of the card, you are off the hook, according to Creeden, in terms of owing that money back. There could, however, be some implications for your credit report and score if you're an authorized user on a credit card and that debt never gets paid back.

"If you are an authorized user, pull your credit report and check to see if the account is being reported on your credit," Creeden recommends. "Occasionally an authorized user's credit score can go down by not paying on the deceased person's account. If it is a very low balance and a credit score is important, some people choose to pay off the account to prevent the negative history affecting their score. Credit reporting should not work that way, there are disputes that can be made and potential lawsuits to file but for a small account, the time and financial cost may not be worth fighting it."

Additionally, while authorized users aren't generally responsible for the debt, there are mistakes you want to avoid so that you don't become responsible…

Can authorized users use an account after the primary cardholder dies?

The authorized user needs to stop using the credit cards the moment the primary cardholder dies. Even if you plan on paying the money back, you should not use the card.

"If someone continues to use the account after the account holder's death they can be sued and held personally liable," Creeden says.

If you have used the card after the person died, Creeden continues, "the best thing to do in that situation is to pay off the amount borrowed after the death, not the total account balance, since the balance at death should go through probate."

But, again, if you can avoid using the card in the first place, after the cardholder has died, that is the best strategy.

Can a spouse use their partner's credit card after they die?

No, a spouse cannot continue using the credit card of their deceased partner. Doing so is credit card fraud. The only time that's possible is if the partner is a joint cardholder, which is a fairly rare situation these days. More likely, the spouse is an authorized user and, see above, authorized users cannot continue using the account after the primary cardholder's death.

What steps should be taken when a credit cardholder dies?

  1. Call the credit card company to close the account. By closing the account, the credit card will stop paying for any service it has been paying for, and if there are recurring payments that the family would want to be aware of - such an electric bill - they should be able to find that out from customer service or the credit card statement.

    "It is almost always good to notify a creditor of a person's passing," Creeden says, though she cautions anybody who is about to make one or several of those phone calls to steel yourself. "Anyone who has ever lost a close family member may be familiar with the torturous series of phone calls to close or transfer accounts," says Creeden, who lost her husband, Gavin, last year to Hodgkin's Lymphoma.

    "Calling businesses and speaking to cheery customer service reps after navigating the automated prompts is a pain on a good day," Creeden says. "Having to say, 'I am calling because my husband died,' and thanking them for their awkward condolences 27 times is draining."
  2. Be prepared to submit documentation of death. Creeden says that almost everybody you encounter will request a copy of the death certificate. So you should be prepared to send -- and to resend -- copies of the death certificate.

    "In my experience some of the less credible banks or creditors will say they did not receive it the first time and add a late fee or new monthly fee to the account since they don't like to close accounts without proof of death," Creeden says. "If that happens to you, be a squeaky wheel. Even if it only adds $15 to the bill, we recommend disputing the fee. Once companies are called on it, they usually waive a fee added after notice of the death."

Notice that calling and canceling the account is step 1 and mailing documentation is step 2. Could you just mail in the documentation and skip the awkward phone car. Technically yes, but that may not be the best plan.

"The only downside is that by the time the mail is received and processed, interest and a late fee will likely be added to the account," Creeden explains. "Even though only the estate is responsible for these bills, the estate is often the only potential inheritance, so reducing the estate reduces what the family inherits."

What happens to credit card rewards after death?

It depends on the credit card issuer. Some credit cards are cagey about the details on how they handle rewards after a cardholder dies; other card issuers seem more amenable to it. For instance, American Express does generally allow credit card rewards to be redeemed after the cardholder dies. Whoever is closing the estate will have to make a phone call, and you'll need documentation such as a death certificate.

Bank of America states that it "may" allow it, if the points are requested for redemption within 57 days of the account closing - and the account has to be closed and paid in full. That said, Bank of America also says that the decision is "in our sole discretion."

So you never know. Even with a stated policy, a customer service representative may have the ability to waive fees or even transfer points to another account held by a family member, so you should always ask if this is important to you. Remember that airline miles and hotel points earned through a credit card aren't held by the bank itself; you'll need to contact the specific brand program to check on these loyalty rewards.

In any case, if this is something that concerns you, check the fine print, and call the issuer to ask. This is something to discuss before you officially close the account as once the account is closed, those rewards are likely to expire quickly unless other plans have been made between you and the card issuer.

Additionally, you can perhaps avoid this rewards question altogether by naming authorized users on your account or "pooling" rewards with family members in applicable programs. If that isn't an option, at least make sure a trusted family member has knowledge of your logins so they can access your accounts in the event of your death. If a survivor can at least log into the account, they have the opportunity to use the points before the points expire after closing the account.

This account access, in fact, is likely the best way to ensure those points don't go to waste and that your surviving family members can still use them after your death. Even if that doesn't happen, though, customer service at a given bank could still offer assistance.

And if there's a lesson in that no credit card manages debt and death in the same way, maybe it's that we should all live life to the fullest, and that we should use our credit card rewards for something fun or even frivolous sooner rather than letting them compile indefinitely since, as they say, you can't take it with you.

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