Credit debt does not disappear once you die. If you die and leave behind a sizable amount of debt, your estate will need to cover those costs. No one likes to think about what may happen to unpaid debt at the time of their death. Planning for it in advance may make the process easier for your estate administrators. Talk to your estate planner to put in place a plan of action so your family does not need to worry about repaying credit card debt after your death. Debts do not, however, transfer to your family or heirs to repay.
Account Owners
If you are the sole owner of the credit card, no one else is responsible for your debt. It will be paid out of your estate. If you are a joint owner of an account, or there is a co-signer on the account, that person may be held liable for the balance. In cases in which you leave behind debt, but no value in the estate, the lender is forced to write off the debt.
Community Property States
Married couples who live in community property states may also be held liable for any debt left by their spouse at the time of death. The following states are the only community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In these states, all debt acquired during the marriage is jointly owned by both spouses -- unless evidence is found showing the debt was created solely by one person. In most situations, the debt must be repaid by your spouse, even if only one spouse's name appears on the debt.
Common Law Property States
In all other states, and the District of Columbia, common law property defines debt repayment. Under these laws, each married couple has the right to his or her own asset ownership, including debt ownership. In these states, when you die, it may not be necessary for your spouse to repay your debts as long as she can prove that the debt was not incurred for the benefit of the marriage. For example, an investment in a business that creates debt may not have to be repaid. A debt created to purchase goods for the home, however, may need to be repaid.
Probate Court
When a person dies, their estate goes to probate court. The estate comprises everything they own, both tangible and intangible, and all debts. Lenders have a full year to file a claim against the estate. If they do, liquid accounts (such as checking, savings and certificates of deposit) will be liquidated to repay the debts. If more debts are found, assets may be sold to repay the debts. After this point, all remaining assets are distributed to heirs.
Avoiding Probate Decisions
Individuals who craft an estate plan are able to avoid probate in some cases by placing specific instructions in their will and estate plan directing others how credit debt is to be repaid.
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