What happens to credit card debt upon a person’s death?
Say I take a large cash advance on a couple of my cards, then die in a freak accident? Is that written off, or can they come after my estate?
What if instead of dying in an accident, I discover I have some terminal illness that is rapidly degenerating*? I take out the money to fund a wild fling/spend it all on hookers, booze, and coke, and then meet my rapidly impending doom. Do they have recourse, or just suck it up?
Consider that I have a mortgage on my house, I own my car, and there may be life insurance, some investments, etc.
For reference purposes, I live in Texas.
*Purely hypothetical. The only terminal condition I am aware of having is being alive.
The credit card company can put a lien on the estate and get their share of any assets, usually before the heirs see a penny.
If there are no assets, then the company simply writes the dead person’s debt off, unless they can browbeat a relative into paying up, which they may well try to do. (I don’t think a relative has any obligation to do so, unless it’s a spouse, and even then I don’t know if the surviving spouse always has to cough up the debt. That probably varies from state to state)
Life insurance generally pays off to the beneficiary, not the estate. In that case, the credit card company can’t go after it.
But the CC company can claim against whatever’s in the estate, like your bank account, car, house (if that goes to the estate), investments and whatever other posessions would be covered under your will.
And what if you created a family trust before the fact? Assets in the trust don’t go through probate. So if your major assets (home, vehicle, bank accounts, furniture, SDMB membership) are in the trust, while your credit card debt is not, does that effectively prevent/hide those assets from the potential lien?
On your death, your debts become an obligation of your estate, and whoever is administering your estate should discharge your debts (and any other obligations). They should do this without waiting for creditors to place liens, etc; they should proactively identify your debts and obligations, and discharge them. Only the residue of your assets is available to be distributed under your will (or, if you have no will, under the intestacy rules to your next of kin).
If there are insufficient or no assets in your estate to discharge your debts, your creditors just have to suck it up.
If you spend, dissipate or give away all your assets before your death, then your estate will have no assets.
This is why people making large loans to you may require, as a condition of the loan, that you effect life insurance in their favour to discharge the loan should you die before repaying it yourself. They don’t want to be exposed to the risk of your estate being insufficient to repay the loan.
When my brother-in-law died we called the companies he had cards with to close the accounts and get final statements. Each one of them asked for a copy of the death certificate and then forgave the debt. The total debt was less than $10,000 so it may have been different if his cards were maxed out.
My dad died with about $60,000 in credit card debt, and it is as people have said - the debts were part of the estate, and they did try to get my mom to pay them in spite of the divorce decree (she told them to go puff - the debts were incurred after they were separated, and her name was not on any of them). The debts were basically written off because there weren’t enough assets to pay them out. We discovered that it is very important for family members, especially spouses, to talk to estate lawyers - the banks dealt very dishonourably with my mom, even lying to her.
Commonly, but not always. Depends on the policy terms. You can set it up either way.
I don’t think you can set up a retirement plan on these terms, but I’m open to correction. But note that in many jurisdictions the assets of retirement plans enjoy some immunity from being seized by creditors anyway.
Depends on the terms of the loan. If it’s a non-recourse loan such that, had the deceased defaulted while alive, the bank could have taken the house but nothing else then the estate has no liability (except, of course, that it will lose the house to the bank). But it it’s a full recourse loan for which the deceased would have been personally liable, then it’s an obligation of the estate.
It’s not uncommon for credit card contracts to include balance insurance - an insurance policy which will discharge any outstanding balance on the account in the event of death. The cost of the policy is built into whatever fees the bank charges for the card. The bank claims on the policy when the cardholder dies, for which purpose they need the cardholder’s death certificate.
Of course, it could also be that some banks have a policy of writing off card balances up to a certain level on death, and they factor the cost of this into their product charges. In that case the bank is effectively acting as self-insurer.
It can and it can’t. It depends on when the assets were placed in the trust and how badly the credit card company wants to try. It would be better to establish what’s commonly referred to as a land trust or a bank trust so that there aren’t any names attached as a part of the public record. The creditors can still sue the trustee but it makes it much harder for them to persue. Mind you that establishing and maintaining such trusts isn’t cheap, so it’s probably not worth it if your estate is worth $10k, but it’s a very common way to protect assets.
Credit life insurance is one of the biggest scams out there. It is for their benefit, yet you pay the premiums. Why anybody get’s suckered into that is beyond me.
Not necessarily. You designate the beneficiary. When my father died, he had an old insurance policy that he never updated. It named my mother as beneficiary, but she was already dead. The policy then paid (by default) to my father’s estate.
My IRA plans specifically designate my wife (and subsequently, my kids) as the beneficiary. But if I hadn’t designated her, they’d go to my estate.
The whole credit card contract is for their benefit; you think they issue the cards to satisfy some charitable impulse?
To my mind the principal beneficiaries of balance insurance are normally your heirs. But for the insurance, the bank would reclaim the balance from your estate, so reducing what is left for your heirs.
