Can You Inherit Credit Card Debt?

“When a parent passes away, can you inherit credit card debt?”

Although not a pleasant subject to think about, whether you can inherit credit card debt from your deceased parents is a question that some people may have on their minds. There isn’t a simple yes or no answer, but depending on the jurisdiction you live in, you may not be responsible for your parents’ debt (at least not directly).

The following is a brief overview of how individuals’ debts are handled after their death, and specifically whether their surviving children have any responsibility for paying them off.

Credit card debt and estate law

While such questions can only be answered by a licensed attorney in your jurisdiction, when someone passes away, the executor generally turns to the person’s estate first to pay off any remaining credit card balances and other debts. If the deceased person has more debts than they have assets, the creditors may be out of luck and will likely have to take a loss. Still, that doesn’t mean that your parents’ debts won’t affect you.

If you are a beneficiary, debts are often dealt with first before any inheritance is distributed. For example, some jurisdictions require that payments be made in this order:

1. Secured debts (i.e. mortgage, car loans)

2. Unsecured debts (i.e. credit card debt)

3. Inheritances as defined by a will

Aside from that, there may still be situations in which you can be left responsible for your loved one’s debt. Here are some examples:

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Being a co-signer or joint card holder

If you co-signed for a credit card and/or are a joint card holder, can you inherit credit card debt? Actually, yes. Parents often co-sign with children who are just starting out (to help them learn about finance), and adult children sometimes co-sign for elderly parents to help them keep track of their expenses. It’s important that you always keep tabs on your credit report and try to make sure any financial issues are resolved before a traumatic event occurs.

Using a card after the card holder’s passing

If you continue to use a credit card as an authorized user after the cardholder passes away, that could be a big problem. It can look as though you are spending someone else’s money with the intention of not paying it back. The same goes for using a card when you know the card holder is near death and doesn’t have enough money in their estate. You could be accused of fraud, especially if you knew that the debt would not be repaid.

The death of a parent can sometimes mean financial turmoil for surviving relatives, but just as in any money situation, addressing it upfront will save you a great deal of stress down the road. Generational debt has the potential to get messy. It’s best to consult with an attorney who can look at your situation and help you decide what your next steps should be.

Can creditors claim assets from the estate?

When someone dies, their debts don’t disappear. Creditors could try to collect by taking and selling items from the deceased person's estate. The estate includes everything of value that the person owned, like their house, car, bank accounts, and even personal belongings. 

If it wasn’t your debt, you didn’t co-sign for it, and you don’t live in a community property state, creditors generally can't come after you for the debt. Instead, they have to file a claim against the estate. As the estate is settled, meaning the deceased person’s financial affairs are dealt with, these debts get paid off with the estate's funds before any money or property is distributed to heirs.

If you're dealing with this, first figure out what debts and assets are in the estate and who the creditors are. Consider consulting with an estate attorney who can help you navigate the details. 

How to protect yourself from inheriting debt

It's tough enough dealing with the loss of a loved one without worrying about inheriting their debt. You can protect yourself. 

First, take a look at your situation. Find out whether you’re in a community property state. If you’re not, you and your spouse could keep separate individual debt accounts to protect each other from responsibility for those debts. 

Buy life insurance that your heirs could use to pay off your debts when you die. If you have a home you want your heirs to keep but there’s still a mortgage on it, buy life insurance in an amount big enough to pay off that loan. Life insurance can also be a welcome financial safety net in a community property state where there’s no way to keep your spouse’s debts separate.

After a death occurs, if a creditor calls you about the deceased's debt, remember that you're generally not responsible for it unless you co-signed or are a joint account holder.

Even while you’re still working out who’s responsible for a debt, communicate early and clearly with the creditors. Let them know about the passing. Seek legal advice to understand your rights and responsibilities fully. And document every step of the process.

Steps to take if you are the executor

If you’ve been named the executor of an estate, it's a big responsibility, but you can handle it. Start by notifying creditors of the death. You'll need to provide a death certificate, and you might also have to fill out some paperwork.

Next, close accounts. You might have to contact credit card companies, banks, and other financial institutions. Ownership of joint accounts typically goes to the other account owner whether it’s a debt or an asset, but the account number might change. Authorized users are not responsible for the primary account holder’s account.

You'll also need to pay off the deceased's debts using the estate’s funds. This is a time when it’s advisable to get guidance from a qualified attorney, because certain debts have priority. Medical debts usually get paid first. Co-signed debts become the responsibility of the living co-signer, so if the estate can afford to pay them off, you could avoid passing the debt to the co-signer.

If there isn’t enough money in the estate to pay off all the debts, different things happen, depending on what kind of debt it is. Unsecured debts like credit cards may go away, but not if you’re in a community property state and the deceased was your spouse. For secured debts like a mortgage or a car loan, you would have to pay off the debt or lose the asset.

Lastly, take care of yourself. Being an executor is a stressful job that happens during a time of grief. Lean on friends, family, or professionals for support. 

Special cases and exceptions

Special scenarios can make things a bit more complicated. 

For joint accounts, both account holders are equally responsible for the debt. So, if you and your loved one had a joint credit card, you're responsible for paying the balance. Co-signers are in a similar boat. If you co-signed a loan, you’re liable for the debt after the other person passes away.

In community property states (California, Arizona, Nevada, Louisiana, Idaho, New Mexico, Washington, Texas, and Wisconsin), debts incurred while you’re married are considered joint debts even if they’re in one spouse’s name. There are a few exceptions. For instance, spouses aren't always responsible for their partner’s student loans. Also, a prenuptial agreement will usually take precedence over state community property laws.

Improve your financial health and pass it down to the next generation

So, can you inherit credit card debt? It depends, but there are steps you can take to avoid that outcome for your own children. Learning how to deal with debt, money, and planning for your future doesn’t need to be hard. Our simple-to-follow guide to help you find the tools you need to move to a better financial future.