What happens to credit card debt when you die?

Credit card debt doesn’t follow you to the grave. Rather, after death, it lives on and is either paid off through estate assets or becomes the responsibility of a joint account holder or cosigner.

In nine community property states, debts acquired during a marriage are the responsibility of the community — or, in layman’s terms, the couple — even if only one spouse is listed on the account.

When the estate loses, beneficiaries lose

Even if you’re not held personally liable for the debt on a credit card, you’ll feel the effects of it if you’re a beneficiary of an estate. That’s because any debts are paid from the estate before designated beneficiaries receive any distributions. In other words, any debts left behind after a loved one dies can quickly eat into their remaining assets, with beneficiaries receiving what’s left over, if anything at all.

Also, note that there is a specific period of time for creditors to file a claim against the estate. When an estate is probated — the process through which assets such as cash, investments and real estate are sold or divided among heirs — the process prioritizes creditors. Though unlike secured debt — like a mortgage that’s secured by property or a car that’s secured by a vehicle — credit card debt is unsecured. For that reason, it’s likely a credit card company will be at the back of the line when it comes to repayment of debts from the estate.

And, like it or not, beneficiaries are often even further down the line than a credit card company is. If the estate doesn’t have enough money to pay all debts, an estate’s beneficiaries could be liable to pay the remaining debt in three specific situations:

• If the beneficiary is a joint cardholder on a card with outstanding debt
• If the beneficiary is a co-signer for a card with outstanding debt
• If the beneficiary was married to the person who died and lives in one of nine community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin.

What happens to credit card rewards when a cardholder dies?

What happens to a cardholder’s accumulated credit card rewards — such as points, miles and cash rewards — after a cardholder dies depends on the card issuer’s policies. If the card is a joint card account, if one cardholder passes away the other cardholder still has access to accumulated rewards.

In other cases, some issuers, such as American Express, allow rewards to be passed on to the deceased’s estate for the benefit of their named heirs (typically within a specified time frame after the cardholder’s death) while other issuers forfeit remaining rewards, leaving no benefit to heirs. Still other issuers might automatically convert unused rewards to statement credits.

Credit card issuers generally consider miles or points to belong to the rewards program itself, rather than the cardholder. A first step is to contact the rewards program, bank or card issuer to see if it allows heirs to make use of any points or miles available earned from the credit card account.

A cardholder may provide heirs information about all their rewards accounts within a will or other estate planning documents, so that they can best manage the rewards after the cardholder’s death.

Certified Financial Planner Rick Kahler advises in an online post, “Including airline reward points in a will may be worthwhile. It might not make a difference with every airline or bank, but some programs will transfer such designated points without a fee.”

Six steps to take after a credit card holder dies

When a cardholder dies, it’s understandable for the task of notifying financial institutions and closing credit card accounts to be pushed aside or forgotten. But plenty can go wrong if these critical tasks are neglected.

For example, identity thieves are known to troll obituaries and online records looking for recently deceased people to impersonate when creating new accounts. Hackers may also look for ways to steal from existing accounts of the deceased, which you may not notice if you haven’t notified banks and card issuers of the death.

Here are six steps a family member, beneficiary or heir should take when a cardholder dies to prevent financial issues:

1. Organize all financial documentation

If you’re the executor of an estate, you should start by organizing the person’s financial accounts. Court-certified representatives and surviving spouses can also request a copy of the deceased’s credit report, which lists all accounts in that person’s name.

“Sometimes, people can be on a credit card and not even know it. Maybe when they filled out the credit card applications, [the joint cardholder] didn’t even tell them.”

— Linda A. KernsPennsylvania attorney

These accounts can show up years later at the time of a death or divorce. “I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event,” says Kerns.

2. Ask for multiple copies of the death certificate

You will likely need to get several official copies of this document to send to credit card companies, settle life insurance claims and support other estate purposes. While the funeral director who handles the burial or cremation of your loved one can help you get copies of the death certificate, you may be able to request a copy from your state’s Department of Health or Vital Records.

3. Prevent further credit card use

After the death of a cardholder, their credit cards are no longer valid. If the card is part of a joint account and the deceased is the primary cardholder, you can’t use the card — not even for legitimate expenses of the deceased, like a funeral or final expenses.

Continuing to use a credit card as an authorized user after the cardholder’s death is the most common way people unknowingly commit credit card fraud, and it could get you into big trouble. Estate lawyers recommend collecting all credit cards from people who may have them, including any authorized user cards, putting them in a safe place or destroying them.

4. Notify credit card companies of the death

After you’ve collected the person’s financial accounts, contact each card issuer and request to cancel the accounts. For joint credit cards, you’ll want to notify the issuer that a joint cardholder has died. In both cases, you’ll need to act quickly to avoid interest and finance charges.

Also, you’ll want to find out if any automatic or recurring charges are set up on each credit card account, such as those for phone bill or utility bill, and cancel or transfer them to another card right away.

Start by calling the number on the back of the card to let them know of the situation. A representative can flag the account and provide the address to which you’ll need to send an official notification letter and supporting documentation, including an official death certificate. Send any documentation by certified mail and save your receipt.

5. Request a credit freeze from all three credit bureaus

It’s a good idea to contact all three credit reporting agencies — Experian, Equifax and TransUnion — to request a credit freeze. A freeze can prevent anyone from opening up new credit cards or other accounts using the name and Social Security number of the deceased.

Start by calling the reporting agencies with the deceased person’s name, Social Security number, date of birth and date of death. Follow up by mail to request that the credit report immediately flagged the as “Deceased. Do Not Issue Credit.”

6. Know your rights before paying debt collectors

Depending on your state’s laws, you may also need to wait a specified time for bills to come in as well as post a public notice of death in a newspaper before you can distribute money.

It’s essential to know your rights when dealing with debt collectors. Remember, you’re protected by the federal Fair Debt Collection Practices Act (FDCPA), which makes it illegal for debt collectors to use abusive, unfair or deceptive practices when they collect debts. Don’t let individual creditors convince you they can jump ahead in line and get paid from the estate first — especially if there’s a chance there won’t be enough money to go around.

If a card issuer reaches out with a request for payment, ask the credit card company to submit a proof of claim for the estate, says attorney John Caleb Tabler. You can include this request with your written notification to the credit card company or submit it later.

Some debt collectors can become aggressive, and they may try to prey on survivors’ emotions to get them to pay a debt they may not owe. When reaching a deal with a debt collector, make sure to avoid admitting or agreeing to anything on the phone — especially a payment plan.

The bottom line

There are a lot of tasks to take care of after someone passes away, especially when there are financial complications like outstanding debt. Unfortunately, credit card debt isn’t wiped clean when a cardholder dies. That debt is still owed to the card issuers and must be paid by the estate or remaining signatory on the account. If you’re a beneficiary or executor for an estate, it’s important to take appropriate steps to handle remaining credit card debt, like canceling accounts, notifying issuers and the credit bureaus and keeping financial documentation in order.