When a person passes away, they often leave behind a web of both assets and liabilities which must be sorted out. If the person’s will was done right, it will clearly outline who will inherit each asset. However, who’s responsible for the deceased person’s credit card debt?
The Rumors
Some people that have a terminal illness and will be passing away in the near future assume they can rake up loads of debt on their credit cards, and no one will be responsible for it after they die. In fact, you may have heard stories before of a person dying of cancer that decides to open up an American Express Gold Card or some other card with a big line of credit to buy a first-class trip around the world. There’s no doubt some people believe this, but is that really how it works?
The Truth
The truth of the matter is that you are responsible for your credit card debts whether you are alive or dead. Once a person passes away, the lenders (including credit card companies) have first dibs on any assets. Typically, the assets will be liquidated to pay off the debts. Once the debts are paid off, anything that is left over will then go to the person(s) listed in the will for inheritance. Therefore, if the person has assets, those assets will be used to pay off their credit cards once they have passed. If the person doesn’t have assets and doesn’t have a living spouse, then creditors are not allowed to go after family to collect the debts.
Alternatives
Many credit cards offer a payment protection plan that will pay off up to $10,000 in the event of certain types of death. How they work is that the cardmember pays a percentage of their spending each month (usually 1%) which pays for the payment protection plan. Then if the cardmember were to accidentally die, their estate won’t be held responsible for the first $10,000 in debt on the account. This is not available on the American Express Gold Card since that is a charge card, however it is available on most credit cards. For example the Bank of America Power Rewards, American Express Blue Cash, Citi Dividend, and Discover More Card all have similar payment protection plans. Please note however that these are an optional feature which you must add onto your account and be willing to pay the monthly fees.
15 Feb
