What Happens to Credit Card Debt At Death?

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Every Friday, I answer a reader’s question.  If you have a question, you can contact me.

I received the following question via email:

…questions about family members, their debt and what happens to that debt if they die.  In the US, if parents die with a lot of debt (credit cards etc…) what happens to it?  Are we as the kids going to be responsible for that?  Any insight on this? 

First, you should know that I am not a legal professional, so you should consult a lawyer to get a clear response for your exact situation.  As always, I cannot be held liable for the advice I give.

Gotta love the legal stuff, eh?

In the United States, debt is not transferable.  The only way a person can be in debt is if they have agreed to it by signing their name. 

The short answer to your question is whatever your parents own will be used to pay off the debt they owe.  Furthermore, your parents’ poor credit standing does not have any impact on your credit score.

In a case where parents do not own much, but owe a lot, you can expect that you won’t get an inheritance.  However, at least you can know that you won’t have the burden of paying their financial obligations once they die.

Children are not responsible for the spending habits of their parents.

Dave Ramsey often says, “What you own stands good for what you owe.”

Credit Card Debt And Death Example:

Old Man Debt and Old Lady Borrower own a house that appraises for $150,000. This is the only asset they have and they have no savings.  In addition, this couple also had $60,000 in credit card debt, $40,000 in car loans, and $125,000 mortgage

The total of what they own = $150,000

The total they owe = $225,000

In this case, $150,00 will be paid towards the $225,000. 

One of two things will happen with the house.  First, the house will be sold ($150,000) and the proceeds will be given towards the $225,000 they owe to creditors.  The other option is that you could buy the house for $150,000 and the money from the sale of the home would go towards paying off $225,000.

It is important to note that typically official homeownership cannot be transfered until the mortgage has been paid off.

So, here’s an example,

Mediocre Mom has a house that appraises for $150,000.  She also owes $40,000 on the house.  In the will, you are supposed to get the house.  Once again, one of two things will need to happen.  Either you pay off the remaining $40,000, (you can get a mortgage in your own name) or you sell the house and keep the $110,000.

But, you’re not completely free and clear

Debt Collectors Make Their Own Rules

Be forewarned.  Just because someone cannot legally collect a parents’ debt does not mean they won’t try.

Think about it.  You’re vulnerable.  You’re grieving.  And you’re an honorable person.  Someone is going to do their best to get you on the phone and convince you that you should pay mom and dad’s bills.  They’ll talk to you about morality, ethics, and obligation.  They’ll lie and make up stories.  Basically, anything they need to do to help collect a debt you do not legally owe.

Reader’s question: Should you pay off parents’ debt out of moral obligation?  Has anyone had an experience where a collector tried to collect money you did not owe?

Comments

  1. Donna says

    Thanks for the great post. My mother and father-in-law are both in their 80′s. I had no idea that debt collectors would attempt to collect on a parent’s debt. Good grief! I will be passing this info along to others to hopefully save some problems down the road.

  2. Gholmes says

    No, I don’t feel a person has any moral obligation to pay off the debt of a deceased relative. That risk is on the business person making loans.

    As far as debt collectors, I dont have any first hand knowledge. Thinking about collectors preying on the vulnerable makes my skin crawl.

  3. says

    It took 2 years for creditors to stop calling us after my father-in-law passed away. He never lived here, had a wife, and the debt was probably hospital related. (He was excellent with his money.) How they got our number is beyond me. We may not have been responsible for it, but we sure ‘payed’ for it in frustration!

  4. says

    I read an article recently where debt collectors in one state (I believe it was in New England) were trying to use a 150 year-old law to collect debts from the children of deceased parents. They were even threatening the children with legal action, based on this obscure 1800s law, that was obviously superceded by newer Federal statutes.

    Never underestimate the devious nature of debt collectors.

    • says

      @Bret
      Yes, unfortunately this crazy stuff happens too often. The best advice is to know your rights during any form of collections. They bully approach definitely applies to collectors.

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