Death of a Family Member and Credit

Created in collaboration with the credit experts at Experian

The death of someone you love is very emotional and stressful. Things seem to happen very quickly. Keeping track of all the things that need to be taken care of can seem overwhelming. Financial matters can be especially challenging. One of the most important financial issues that must be addressed – but that is sometimes overlooked – is what happens to your family member’s credit now that they are gone.

This chapter answers these important questions about credit after the death of a family member:

• What happens to debt after death?
• Are you responsible for your spouse’s debt after their death?
• What happens to credit card debt after the death of a parent?
• How do you protect your credit after the death of a family member?
• How do you protect loved ones from inheriting your debt?

Debt doesn’t just go away when a person dies.

What Happens to Debt after Death?

Exactly what happens to an individual’s debt when they die depends on several factors, such as the type of debt, whether there was anyone listed jointly on the debt, and whether the deceased person lived in a community property state if they were married.

The individual’s estate may pay any remaining debt, but you also might find yourself responsible for debts previously owed by your family member.

Are You Responsible for Your Spouse’s Debt after Their Death?

There are two important factors that might make you responsible for your spouse’s debt after their death. The first is your relationship with the accounts and second is whether you live in a state with community property laws.

As a joint account holder, you share full responsibility for repayment of the debt, even after the other person has died. The account contract will show your relationship with the account. Your credit report also will list your account association, whether individual or joint. You can get your credit report free once every 12 months at www.annualcreditreport.com.

When a Spouse Dies, Joint Account Holders are Responsible for Debt.

Accounts that were in your spouse’s name only, and that do not appear in your credit report will not affect your credit scores. However, if you live in a state with community property laws, accounts entered into during the marriage may automatically be joint.

Community Property States

If you live in a state with community property laws, accounts entered into during the marriage may automatically be joint.

Community property laws can be different in each state. Check your credit report to see if the accounts appear there. If so, you are almost certainly responsible for the debt. To learn more about your state’s laws, contact your Attorney General’s office, or a lawyer.

What Happens to Credit Card Debt after the Death of a Parent?

When a parent dies, any debt left behind generally becomes the responsibility of their estate. The individual named executor of the estate is responsible for distributing the assets of the deceased to repay debts, including any remaining credit card debt.

In instances where the deceased did not have insurance and there are not enough assets to cover what is owed, it becomes more complicated.

If there is credit card debt, anyone who is a joint account holder may be held responsible, even if they are not the ones who made the charges. If the deceased individual was married and living in a community property state, their surviving spouse may be legally responsible for their debts, even if they were not aware of the debt prior to their spouse’s death.

If you are left with the responsibility of a parent’s debt and are unable to repay it, you should speak to the creditor as soon as possible to discuss your options.

Because there are so many legal factors to consider, it’s best to consult with a probate attorney who specializes in such matters.

When a Parent Dies

The executor distributes assets of the deceased to repay debts, including credit card debt. If there are not enough assets to cover the debts, children and spouses may be responsible.

How Do You Protect Your Credit after the Death of a Family Member?

The death of a loved one will not affect your credit history if you do not share any credit accounts with them. However, if you had joint accounts, or cosigned for a loan with them, it’s important to take steps to ensure your credit history remains positive.

Protecting Credit After the Death of a Family Member

Pay on Time

Pay Past-Due Debts

Keep Credit Card Balances Low

Know Your Risk Factors

As a joint account holder or cosigner, you are contractually responsible for the debt and responsibility for continuing to pay it may pass onto you. Late payments would then damage your credit history.

If you are left with the responsibility of a loved one’s debt and are unable to repay it, you should speak to the creditor as soon as possible to discuss your options. You may also wish to consult an attorney for legal advice.

The best thing you can do is continue to make the payments on time. If your credit has suffered due to unexpected debt, begin rebuilding as soon as possible. There are some basic steps you can take to begin improving your credit scores after financial difficulty, including challenges resulting from the death of a family member:

• Make Sure All of Your Payments Are Made on Time, Every Time. Your payment history is the single most important factor in credit scores. Making your payments on time shows that you maintain your credit responsibly.  By making on time payments with Wards Credit, customers can improve their credit scores while also earning higher account limits.
• Keep your credit card balances low. The second most important factor for credit scores is your utilization rate, which is simply the total of all your credit card balances divided by the total of your credit limits. The lower your credit card balances, the lower your utilization rate. Low utilization rates are good for credit scores.

• Pay Off Any Past Due Debts. Bring any past due accounts current as soon as you can. If you have accounts on your report that have been written off or sent to collections, paying them off will look better than leaving them unpaid. Paying off collection accounts could help your scores immediately and significantly. The newest credit scoring systems exclude paid collections from the calculation.
• Focus on your Credit Score Risk Factors. When you order your credit score, you will receive a list of the factors from your credit report that are most affecting the number. Use those factors to help you make changes that will improve your credit score over time. While there is no quick fix for a low credit score, focusing on the risk factors will help you improve it more quickly.

How Do You Protect Loved Ones from Inheriting Your Debt?

Create a Will

Be Insured

Reduce Debt Now

Thinking about your own death can be unpleasant, but is very important. Failing to plan for your passing can leave your loved ones with the burden of repaying any remaining debt you owe. Here are a few things to consider:

• Create a will. There is sometimes a feeling that wills are for people with a lot of money, property or possessions. That is not true. A will specifies how any assets from your estate will be distributed and addresses how any remaining debts will be paid. Some things to consider:
  • Without a will, the government may determine how your assets will be distributed. That may mean that your family won’t receive what you intended and can create significant tax and other financial issues.
  • There are many low-cost or sometimes free services that can help you prepare a will. Your employer’s human resources department may be able to provide some guidance. Check the website of your state Attorney General, as well. It may provide information on wills and estate planning and links to trustworthy legal experts who can assist.
• Be adequately insured. Being properly insured will provide the financial resources to pay for costs your loved ones may face when you die. Funeral services, outstanding debts and other costs may be paid through insurance policies. Insurance policies may also leave some cash behind for your loved ones.
• Reduce Your Debts Now. Paying down debts while you are living will help protect your loved ones from financial difficulty. Having no debt means they will not have to track down creditors and ensure payment is made after you are gone. It also will ensure that family members who may be joint account holders or cosigners with you are not burdened with the debt after the estate has been settled.

Speak to a qualified financial advisor or estate planner about preparing for your death. It may not be fun to think about, but it is essential to ensuring your family is in a sound financial position when that time comes.