Credit Card Debt After Death
You Can’t Take It With You
Who is responsible for credit card debt after death? Well one thing is certain, you can’t take it with you. Your debt stays behind and who is responsible for it depends on whether or not you live in a community property state.
In both community property and non community property states, when you die your debts become part of your estate. Whoever is appointed as your administrator sells off your assets and uses the money to first pay the costs of administering your estate then your outstanding debts. If there are funds left over they are distributed to your heirs or whoever you designated in your will. If you did not leave a will, then the property passes according to the rules of intestacy which are somewhat complex.
Protecting Your Estate Assets
Oftentimes there are ways to protect your estate assets from being liquidated to pay your debts by having them pass outside your estate. Insurance proceeds, retirement accounts, bank balances, and IRAs are examples where you designate a beneficiary to receive the asset when you die. You can also set up a real estate trust or create a life estate in your spouse with the property eventually passing to your children so that the real estate does not become part of your estate. You could also convey the property before your death and retain a life estate in it so that you can continue to live there. Please note that if you live in a state which grants a homestead exemption, then you do not need to worry because your house would then be protected from the reach of creditors. If you have not already, you need to sit down with an estate planner and get an estate plan enacted.
Non-Community Properties
In non community property states, when you die your debt, if your estate is not solvent, dies with you. This is unless your spouse was a co-signer on the credit cards. However, if your spouse was no more than an authorized user, then the debt remains your own. However, in community property states, the debt would pass to your spouse. There are some exceptions if you can prove the credit cards were the separate property of your spouse since federal law mandates that spouses be allowed to obtain credit in each one’s own name. So the best advice here is if you live in a community property state, you should consult with an attorney on whether or not you are responsible for credit card debt after death.
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