Death and debt—two topics many of us like to avoid. But one is inevitable and one is probable. Since the majority of Americans have some form of credit card debt at any given time, knowing what happens to this debt is important.
If you have credit cards, you may be wondering what happens to the balances remaining on those cards after you die.
The main thing to know is that your loved ones cannot be forced to settle your debts out of their own assets after you die. So no, your kids or your parents won't end up footing the bill for those cute sandals you bought.
But that's not the end of the story.
Does credit debt disappear after you die?
You can probably guess the answer to this one. If credit card debt just vanished after death, most people would probably spend their way to the grave. But under certain circumstances some of your debt—or even all of it—could be wiped out after you're, er, wiped out.
If you're not married, your estate (that is, everything you own when you die) will most likely be responsible for paying off any debts you leave behind. There is a hierarchy of which debts get paid first. Generally, secured debt (such as for car loans) gets paid first. Unsecured debt, like credit cards, are at the end of line.
If there isn't enough money in the estate to cover your debts, your executor or personal representative may have to sell some of your belongings to cover the balances.
If this is still not enough to take care of your credit card balances, your debt typically goes unpaid. The credit card company will have to absorb the balance.
Is your spouse liable?
The short answer: maybe.
If your spouse is a joint account holder on a credit card, they are responsible for paying off the debt after you die.
It’s important to note that an “authorized user” is not the same as a joint account holder. If you have named your spouse an authorized user only, typically, they are not responsible to pay off your balances.
Also, if you live in a community property state (more on that below), your spouse may be responsible for paying some or all of your credit card debt.
Is your cosigner liable?
If you have a cosigner on any of your credit cards, they are liable for any balances you have on those cards after you die.
That’s why you need to proceed with caution if you’re going to ask a family member or friend to be a cosigner on your accounts. Make sure you understand what you are asking of them, especially if you tend to carry a high balance on your credit cards.
How do state laws affect the debt?
In community property states, a surviving spouse may or may not be required to use community property to pay your credit card debt after you die. Those states include Alaska (not an automatic — couples have to choose), California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
However, these issues can be extremely complicated, so it's best not to assume one way or the other. Your best bet is to contact a local attorney.
Learn more about how to shore up your finances to plan for your financial future.