If you have a loved one who dies and has a lot of debt you might be wondering what happens to credit card debt when you die with no assets. Are their family members responsible for paying it off if there is no estate that the money can come from? Find out now what your responsibilities might be.
What Happens to Credit Card Debt When You Die With No Assets
What happens will depend on the situation you and the deceased are in at the time of death.
Here are some of the most common situations you may find yourself in.
1. There is a Will
If the deceased has a will then it will be filed with the court and the deceased assets will be frozen until their debts are settled. This is called probate.
Once the debts are paid, and any beneficiaries of the will are identified, the remainder of the assets, what’s leftover, will be distributed to the beneficiaries.
Any of the following can be considered assets:
- Any money they have in the bank
- Any property with cash value
- Their home
- Their vehicles
If there are no assets, you will not be responsible for paying off any outstanding debt unless you are a joint account holder.
2. There Is No Will
Very often, assets pass to heirs without going through probate or being part of the estate.
Most of the time, with some expectations, creditors cannot go after assets that have already gone directly to the heirs.
It is the only property that is considered part of the estate that creditors can attempt to use to pay off outstanding debt.
Credit cards are unsecured debt and tend to be pretty low on the priority list, so often times they get nothing and have to write off the debt.
A home could have a mortgage, and that will have to be paid or the lender can foreclose on the home.
The same is true with a car loan.
3. You are a Joint Account Holder
If you are a joint account holder on a loan or credit card, then you can be responsible for the debt after the other person has died.
In today’s world, very few credit card companies actually offer joint accounts.
So, chances are you are not a joint account holder.
4. You are Not a Joint Account Holder
You might be an authorized user on the credit card.
This means that the person who applied for and received the credit card got an additional card in your name and allowed you to use it.
They were still responsible to make all monthly payments.
As you do not have a contract with the card company, you will not be held responsible to pay off the debt.
5. You Live in a Community Property State
If the deceased was a spouse and you live in a community property state, you will be held responsible for the debt.
Washington state, Wisconsin, Nevada, New Mexico, California, Arizona, Idaho, and Louisiana are all community property states.
So, you may be responsible for the debt even if you were not a joint account holder and even if you were not an authorized user.
If you don’t live in a community property state, then this will not apply.
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Property that is Protected From Creditors
There are certain types of assets that are protected from creditors after death.
- Life insurance proceeds
- Retirement accounts
- Brokerage accounts
- In some states, homes are also produced depending on how the title to the property is held.
When my father passed away there wasn’t an estate. My folks rented their home from my sister, so there was no home to sell to pay off debts.
My father had a small life insurance policy, but creditors couldn’t go after that.
My parents did have a car, but it wasn’t worth that much.
We sent a copy of the death certificate to the credit card companies with a letter stating there was no estate.
What little debt he had was written off by the companies.
My mother was not a joint account holder, so she wasn’t responsible for the debt as they didn’t live in a community property state.
There was no will, so it didn’t go through probate.
This is going to be the case for most people that die without assets.
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To Sum it All Up:
If you are not married to the deceased and there are no assets you will not be held responsible for the debt unless you are a joint account holder. Oftentimes, if there is no estate, you won’t be held responsible for credit card debt even if you are married to the deceased. As a child of the deceased, you are pretty much in the clear.
Just keep in mind that if there is secured debt such as a home or car, it is possible that someone will have to make those payments or those assets could go back to the lender.