Credit Card Debt After Death
Spending used to require serious effort. The act of removing currency and coins from a wallet and handing them to a cashier reminded you that a loss had taken place. The purchased item or service was certainly worthwhile, but your billfold or change-purse was definitely lighter. Check writing provided an even clearer picture of the damage. The dollar amount leaving your precious bank account was written both numerically and in long-form prose on a special piece of paper.
Paying for things on credit is not a recent concept, as any viewer of “Little House on the Prairie” could attest. The simplicity and ease of use of a small card for customer and retailer alike was the culture change agent. When Diners Club and American Express Cards began in the 1950’s their influence spread to banks and other financial companies which issued their own cards with revolving credit lines. By the 1980’s, credit cards were the secret weapon in adults’ wallets. A decade later, college kids would receive credit card applications with their orientation packets. Combine the ubiquity of credit cards with the growth of home shopping options – first on cable tv then the internet and presto! The average household credit card debt for 1986 (adjusted for inflation) hovered around $3,430. In 2020, it is $8,509.
Death does not extinguish a person’s credit card debt. Credit card companies have the right to file an estate claim for the amount owed. If the claim is filed within seven months after an estate is opened then the Executor or Administrator is deemed to have been put on notice. The decedent may have had other creditors as well, not to mention family members who require reimbursement. Creditors are prioritized in New York State according to certain guidelines. A third party who paid for the decedent’s reasonable funeral expenses is usually paid first out of estate funds. Estate Administration costs including filings and Court fees follow. The next rung of creditors may include tax authorities.
If there are not sufficient assets in the estate to cover all of these debts plus the credit card debt then a fiduciary (Executor or Administrator) may negotiate in good faith with the credit card company to reduce or eliminate the debt. Even if there are sufficient estate assets a fiduciary should try to negotiate with the credit card company. Credit card debt is unsecured – meaning it is not backed up by an underlying asset as security for the debt like a home for a mortgage. Higher interest rates for credit card loans represent the risk to the company. Card companies have to spend time and money pursuing estate debtors and may be willing to take something less to close their file. Surviving spouses are not obligated to pay the credit card debt of the decedent unless they are a co-signer or joint account holder of the card in question. An authorized user of the card should not be required to pay either.
My grandparents treated debt as a curse and studiously avoided it. Credit cards are not going away, but understanding their place in your estate planning will give you peace of mind. Talk to the professionals at Sloan and Feller today for more information on debt and estates.