Credit card debts are not inherited by family members, and are paid for your property in the complex process.
Almost three out of 4 consumers die in debt. Will the family members inherit the debt on their credit card?
Unfortunately, the debt your credit card will not disappear when you die. Your property, which includes everything you own — your car, house, Bank accounts, investments, and more — covers your debts with these assets.
The executor of your estate, the person who takes your wishes, will use your assets to pay off debts on your credit card. But when your credit card debts are draining your assets, heirs may stay with a small or no inheritance.
If you are worried that your loved ones will be stuck in debts after your death, make sure you know your rights. You might even want to work with an attorney to protect your assets.
Who pays your credit card after your death?
When a family member dies, the relatives usually do not have to repay the credit card debts. But there are some exceptions.
Spouse or another family member may have to pay the debts if he or she:
Co-signed for a credit card or a loan;
Has a joint property or business;
Lives in one of the nine States: California, Arizona, Idaho, Louisiana, Nevada, new Mexico, Texas, Washington or Wisconsin;
Payment required by state law to repay the debt, for example, health care costs or to resolve property issue.
Authorized users of credit cards do not have to repay the debts of the deceased if you are not using one of the above conditions. In the presence of joint accounts, the surviving cardholder should continue to make timely payments to avoid late payments and negative credit reporting.
Spouse with joint accounts may end up stumbling upon a secret debt that can cause financial difficulties.
If the analysis debt is causing strife, family members can check the credit reports of the deceased. Spouse or the executor of the property may submit a request for the report in each of the three main companies that provide credit reports: Equifax, Experian and TransUnion.
How to pay your debts after death?
The legal process of the payment of debts and distributing what is left to heirs is called probate.
If you have no wills or other arrangements, probate court will determine financial Affairs after death. In most States, the executor appointed by the court or specified in the will, is responsible for handling the final data about your property.
Sometimes the probate process is simple, and in other cases it is in the court of probate for several months or years.
One common situation is when a non-married man dies and has credit card debt, but no assets. In this case, the lender probably won’t to collect the debt, says Scott Shomer, Director General of the Schomer Law Group, a firm from Los Angeles, dealing with estate planning.
If a person has credit card debt and assets, the main question is whether the assets to the creditor, ‘ says Shomer. If the deceased had a life insurance policy, the proceeds are transferred to the beneficiaries to repay the debt. The life insurance policy is a contract with the insurance company, who in exchange for the award provides for payment of lump-sum payments to beneficiaries in case of death of the insured person.
If the deceased had assets, credit card debt and other debts, the executor must follow the basic rule, says Shomer: beneficiaries can’t take the money, not paying bills. According to him, the first duty to be paid is the balance on a mortgage loan or a car loan.
Creditors must file any claims against the estate within the period prescribed by the state. If this requirement satisfies the prescribed deadline, and the property has sufficient assets, it must be paid.
If a property pay a bunch of debt on a credit card, the heirs awaiting an inheritance, may be less assets. But the rules vary from state to state, and agreements reached to death, will affect how much debt will be returned.
How can you avoid probate?
The best way to avoid transfer of the inheritance to have a living trust because the assets in the trust are not subject to inheritance. The trust will own the assets and they will be distributed in accordance with the instructions in the trust.
How can you prevent the transfer of debts?
People who want to avoid the encumbrances of family members with their financial Affairs when they die can ask a lawyer to make a will or power of attorney.
Keep in mind that even with well-designed plans family members may continue to deal with creditors. Debt collectors are sometimes linked to family members even if they know the relatives of the deceased often do not have to pay the bills.