What do the US do with credit debt after the death of a borrower

Credit card debts are not inherited by family members, but are paid by your property in a complex process.

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Nearly three of 4 consumers die in debt. Will family members inherit their credit card debts?

Unfortunately, your credit card debt doesn't go away when you die. Your assets, which include everything you own—your car, home, bank accounts, investments, and more—pay off your debts with those assets.

The contractor of your property, the person who fulfills your wishes, will use your assets to pay off your credit card debts. But when your credit card debts drain your assets, heirs may be left with little or no inheritance.

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If you are worried that your loved ones will be stuck in debt after your death, make sure that you know your rights. You might even want to work with a lawyer to protect your assets.

Who pays with your credit card after your death?

When a family member dies, relatives usually do not have to pay off credit card debt. But there are some exceptions.

A spouse or other family member may have to pay debts if he or she:

• Jointly signed up for a credit card or credit;
• Has a joint ownership or business;
• Lives in one of nine states: California, Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin;
• State law payment is required to pay off debt, such as health care costs or to resolve property issues.

Authorized credit card users must not repay the deceased if one of the above conditions does not apply. If there is a joint account, the surviving cardholder must continue to make timely payments to avoid late payments and negative credit reporting.

A spouse with joint accounts may eventually stumble upon a secret debt, which can cause financial difficulties.

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If debriefing is a quarrel, family members can check the deceased's credit reports. A spouse or property contractor can send a report request to each of the three major credit reporting companies: Equifax, Experian, and TransUnion.

How are your debts paid after death?

The legal process of paying debts and distributing what remains to the heirs is called a will.

If you do not have a will or other arrangements, the court of succession will determine the financial affairs after death. In most states, a contractor appointed by the court or indicated in a will is responsible for processing the final data about your property.

Sometimes the will process is simple, but in other cases it takes place in a probate court for several months or years.

One simple situation is when an unmarried person dies and has credit card debt but no assets. In that case, the lender probably won't collect the debt, says Scott Schomer, CEO of Schomer Law Group, a Los Angeles-based estate planning firm.

If a person has credit card debt as well as assets, the main question is whether the assets are available to the creditor, Schomer says. If the deceased had a life insurance policy, the proceeds are transferred to the beneficiaries until the debt is paid off. A life insurance policy is a contract with an insurance company that, in exchange for a premium, provides a lump sum payment to beneficiaries upon the death of the insured.

If the deceased had assets, credit card debts and other debts, the executor must follow a basic rule, Schomer says: Beneficiaries cannot take money without paying bills. The first debt to pay is the balance on your mortgage or car loan, he said.

Lenders must file any property claims within the time limit set by the state. If this requirement meets the deadline and the property has sufficient assets, it must be paid.

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If a lot of credit card debt is paid by property, fewer assets may be left to heirs awaiting inheritance. But the rules vary from state to state, and arrangements made before death will affect how much debt will be repaid.

How can you avoid a will?

The best way to avoid probate is to have a living trust because the assets in the trust are not subject to probate. The trust will own the assets and they will be distributed according to the instructions in the trust.

How can you prevent the transfer of debts?

People who want to avoid burdening family members with their financial affairs when they die can ask a lawyer to issue a will or power of attorney.

Keep in mind that even with well-thought-out plans, family members may still run into lenders. Debt collectors sometimes contact family members, even if they know that relatives of the deceased often do not have to pay bills.

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