At the time of writing, the average American household has credit card debt of more than $15,000. When someone dies, chances are she leaves behind unpaid credit card debt. Survivors need to understand the obligations of the executor -- who gets paid first and why. In some cases, bequests cannot be distributed because the executor's obligation is to pay unsecured debt first. But survivors also need to know that unless they are signatory on the card, they have no obligation to pay the deceased's credit card debt.
Who Is Responsible
When someone dies, leaving credit card debt behind, in most cases only the estate of the deceased has the legal obligation to pay off the debt. Joint credit cards are the exception to this general rule. If an individual dies, leaving debt on a joint credit card -- a card with more than one person as signatory -- it doesn't matter who actually charged the card that created the debt. All parties bear full responsibility on joint debt. When one party dies, the survivor or survivors have a continuing obligation to pay off the debt in full.
Who Is Not Responsible
When a relative dies, survivors have no responsibility to pay off remaining credit card debt unless the credit cards were jointly held. Under the law, credit card companies have a federally acknowledged right to contact surviving relatives and ask for payment. Although they may not legally demand it, sometimes the line between a demand and a request may be blurred by an unscrupulous debt collection agent. As of this writing, this is a growing problem. In 2013, for example, the Federal Trade Commission received more than 200,000 complaints about the practices of debt collectors. The number of debt collection complaints received by the FTC the same year was exceeded only by complaints related to identity theft.
Who Has Limited Responsibility
The executor of an estate normally has no responsibility for the debts of the deceased. The executor, however, has what is known as a "fiduciary duty," which means he has a legal obligation to act with the highest degree of integrity and with equal regard for the interests of everyone who has a claim on the estate. It doesn't matter if the interested party is the deceased's beloved granddaughter or the credit card arm of a huge bank.
If you're the executor and you fail to fulfill this obligation, you can become legally responsible for the consequences. For example, if the estate goes into probate and you officially notify the deceased's relatives but do not notify the creditors of the probate proceeding, the creditors may later demand that you pay the debt. In some instances -- particularly if it becomes clear that you acted deliberately or were careless about discharging your responsibilities -- a court may require you to pay it.
Who Gets Paid First
The details of probate proceedings can be complicated, but a few general rules apply:
Probate laws differ slightly from state to state. If you're the executor, you have an obligation to comply with the laws of the state where probate occurs.
Debt obligations come first. Distributions of assets come after all debt has been paid.
If the liquid assets of the deceased are insufficient to pay off all debt, sufficient assets must be sold to pay off that debt in full -- even an asset that was willed to someone.
The order of paying off debt becomes important when the assets are insufficient to pay off all debt. Federal taxes and student loan debt have the highest priority. Other tax debts come next. After that, secured debt -- such as the mortgage on a house -- has priority over unsecured debt, which includes credit card debt.
I am a retired Registered Investment Advisor with 12 years experience as head of an investment management firm. I also have a Ph.D. in English and have written more than 4,000 articles for regional and national publications.