Can You Inherit Credit Card Debt?

Although it’s not pleasant to think about, whether you can inherit credit card debt from your deceased parents or partner is a question that does come up. There isn’t a simple yes or no answer, but depending on the jurisdiction you live in, you may be responsible for certain kinds of debt that belonged to your parents or partner.

Here is a brief overview of how debts are handled after death.

Credit Card Debt and Estate Law

While such issues can only be fully addressed by a licensed attorney in your jurisdiction, it’s generally the case that when someone passes away, their estate is responsible for paying off any remaining credit card balances and other debts. 

If the deceased person has more debts than assets that could be sold, the creditors may be out of luck, and will likely have to take a loss. Still, that doesn’t mean your parents’ debts won’t affect you.

If you're a beneficiary, debts are often dealt with first before any inheritance is distributed. For example, some jurisdictions require that payments be made in this order:

• Secured debts (such as a mortgage or car loan)

• Unsecured debts (such as credit card debt)

• Inheritances as defined by a will

Aside from that, there may still be situations in which you may be responsible for your loved one’s debt. Here are some examples.

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If You're a Cosigner or Joint Cardholder

If you cosigned for a credit card and/or are a joint cardholder with another person, you are equally responsible for any credit card debt from that account—including if your cosigner passes away. Cosigned credit card debt doesn't disappear when the joint account holder dies.

Parents often cosign with children who are just starting out (to help them learn about finance), and adults sometimes cosign for their elderly parents to help them keep track of their expenses. It’s important that you always keep tabs on your credit score and report, and try to make sure financial issues are resolved before a traumatic event occurs.

Note that if you're an authorized user, you aren't responsible for the debt of the main account holder.

If You Live in a Community Property State

If you and your deceased spouse live in a state with community property laws, you might be responsible for credit card debt even if you aren’t on the cardholder agreement. 

Credit card debt that benefitted the household is typically considered shared debt in community property states. For example, if the credit card debt was to cover a roof repair for your joint home, that debt could be considered community property. 

If the debt is deemed to be community property, you might be responsible for repaying it. The creditor might have the right to sue you to recover the debt.

These states have community property laws, which affect divorce as well as estates:

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

Using a Card After the Card Holder’s Passing

If you're a joint cardholder or cosigner on the credit card account, you can likely continue using the account as normal. In fact, you should at minimum continue to make payments on time as normal.

If you're an authorized user, you should stop using the card immediately. Continuing to use a credit card after the account owner’s death is considered credit card fraud, even if you use the card to pay for funeral expenses or related bills.

The death of a parent can sometimes mean financial turmoil for surviving relatives, but just as in any money situation, addressing it upfront could save you a great deal of stress down the road. Generational debt has the potential to get messy. It’s best to consult with an attorney who can look at your situation and help you decide what your next steps should be.

Can Creditors Claim Assets From the Estate?

Yes. When someone dies, their debts don’t disappear. Creditors can file a claim against the deceased's estate to try to collect what is owed. You don’t have to be wealthy to have “an estate.” An estate includes everything of value that the person owned, like their house, car, bank accounts, and even personal belongings. 

As the estate is settled, meaning the deceased person’s financial affairs are dealt with, debts generally get paid off with the estate's funds before any money or property is distributed to heirs.

If you're dealing with this situation, first figure out what debts and assets are in the estate, and who the creditors are. Consider consulting with an estate attorney who can help you navigate the details. 

How to Protect Yourself From Inheriting Debt

It's tough enough dealing with the loss of a loved one without worrying about inheriting their debt. Here are a few tips to help you protect yourself:

• Find out whether you’re in a community property state. If you’re not, you and your spouse could keep separate individual debt accounts to protect each other from responsibility for those debts. 

• Buy life insurance that your heirs could use to pay off your debts when you die. If you have a home you want your heirs to keep but there’s still a mortgage, buy life insurance in an amount big enough to pay off that loan. Life insurance can also be a welcome financial safety net in a community property state, since there’s no way to keep your spouse’s debts separate.

After a death occurs, if a creditor calls you about the deceased's debt, don’t let them make you feel pressured. Unless you’re in a community property state and your spouse dies, you're generally not personally responsible for someone else’s debt unless you cosigned or you’re a joint account holder. 

Even while you’re still working out who’s responsible for a debt, communicate early and clearly with the creditors. Let them know about the passing. Seek legal advice to understand your rights and responsibilities fully. And document every step of the process.

Steps to Take if You Are the Executor

If you’ve been named the executor of an estate, it's a big responsibility, but you can handle it. The exact actions you need to take vary by location, but here are some steps that are usually required: 

• Notify creditors of the death. You need to provide a death certificate, and you may also have to fill out some paperwork.

• Close accounts. You might have to contact credit card companies, banks, and other financial institutions. Ownership of joint accounts typically goes to the other account owner whether it’s a debt or an asset, but the account number might change. Authorized users aren't responsible for the primary account holder’s debt.

• Pay off the deceased's debts using the estate’s funds. This is a time when it’s advisable to get guidance from a qualified attorney, because certain debts have priority. Medical debts usually get paid first. Cosigned debts become the responsibility of the living cosigner, so if the estate can pay them off, you could avoid passing the debt to the cosigner.

If there isn’t enough money in the estate to pay off all the debts, different things happen, depending on what kind of debt it is. Unsecured debts like credit cards may go away, but not if you’re in a community property state and the deceased was your spouse. For secured debts like a mortgage or a car loan, you may have to pay off the debt or lose the asset.

Lastly, take care of yourself. Dealing with a death is stressful. Lean on friends, family, or professionals for support.