What happens to your credit card debt after you die?
Although nobody really wants to think about what will happen to our loved ones when we die, when it comes to our finances it’s important to understand how any assets and debts we have will affect our nearest and dearest when we meet our maker.
One of the most common debts left behind, and the one that seems to trouble the public more than any other is credit card debt. What happens to your credit card debt when you die? Is it written off or will your family have to pick up the bill?
Let’s have a look at how you may be affected by your credit card debt when you die.
Debt After Death
Most of the time any personal debt that isn’t a secured debt, i.e. secured against an asset will not be the responsibility of your loved ones after you’re gone. What normally happens is that any estate or assets left behind will go towards paying the debt off, and what’s left will then be given to whoever is named in your will.
In cases where the debt is greater than any assets left behind sometimes, the credit card company will be forced to write off the debt as a loss. Of course companies do everything in their power to avoid such situations and it’s important your loved ones stay in close contact with your debtors as soon as they can after your death.
What they need to do immediately is to contact your credit card company and inform them you are deceased. At this point they should also ask that any interest rates be frozen so the debt doesn’t continue to grow.
Although the credit card companies aren’t obliged by law to meet your demands most of them will. In some cases they will make an offer to freeze or reduce interest if your loved ones pay the debt off within a short period of time. The credit card company will of course want to see written proof of your passing to protect themselves against fraud, and normally a copy of your death certificate will be acceptable.
What you need to let your family know is that their request to freeze your interest rate won’t have an adverse affect on their credit history in the same way as if a living person did it. It only affects the credit history of the person whose account and debt it is. Unless you plan on applying for credit from beyond the grave this shouldn’t really be of any concern.
There are some cases where those left behind will be liable for your credit card debt, and those cases are where you have had a joint account or co-signatory. Where your account has been joint, as soon as one of the account holders dies the remaining account holder will automatically become solely responsible for the debt.
This is prime reason why you should be very careful who you co-signature with, especially with a product where debts can become very large in a short space of time. If you do have a joint credit card make sure you are both fully aware of the credit limit and current balance so that if the unthinkable happens you will be prepared.
Credit Card Debt And Property
If you have a credit card account where the debt is secured against your property it’s important you let your family know. In the event of your death any outstanding debt will need to be paid off using proceeds from the property.
Because probate can often take a long time to come through it’s important your family gets in contact with the card company to arrange for a freeze on the interest, or else when your property is eventually sold they will be get a nasty surprise.
If your family is intending to keep your property they must take responsibility and pay off the debt within a certain period of time or the card company can take steps to recover their debt, forcing the sale of the property.
All of these rules can be different depending on where you live, and the type of credit card account you have. The real answer is to keep all credit card debts to a minimum so that if tragedy does happen to strike, you family won’t have too big a balance to worry about.
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