What Happens to Your Debt When You Die? | CreditShout

What Happens to Your Debt When You Die?

By Dawn Allcot / January 26, 2017
What Happens to Your Debt When You Die?


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The average American has more than $5,600 in credit card debt according to the TransUnion survey, Debt in America. But an alarming survey completed by CESI Debt Solutions shows that retirees, and those close to retirement, are no exception. And many have no intentions of paying back their debt before they die.

So what happens to your debt when you die? And how will this affect your spouse, dependents and others?

Older Americans are in Debt Too

The survey by CESI Debt Solutions and reported at USA Today revealed that only 47% of people close to retirement believe they will be debt-free before that day.

Even worse: Only 51% are considering delaying retirement until they get out of debt. Even more alarming? Of those people, 27% have no plan and are “unconcerned” about paying back that debt — ever.

Some other interesting statistics:

  • Close to 30% of the retirees polled have accrued credit card debt since retirement.
  • Close to 40% of those are not concerned about paying back this debt in their lifetimes

Sadly, 59% of those people went into debt to cover medical expenses. But another 31% spent the money they didn’t have on “leisure activities/entertainment” and 39% racked up debt for “vacations and travel.”

Of course, the credit card companies would love for these Baby Boomers to pay back their debt. If the social security crisis looks bad when all the boomers retire, the banking industry may get hit even worse when that generation dies with millions of dollars in unpaid debt.

But, aside from it being the socially, morally and fiscally responsible thing to do, is there a good reason to pay off your debt?

What really happens to all that debt when you die? The answer varies depending on the type of debt and the type of estate you leave behind.

Joint Accounts: Surviving Spouses Beware

In the case of joint accounts, including mortgages and credit cards, the surviving spouse will be liable for the debt and will take it over as if it were their own — which it is. That’s another compelling reason to keep credit cards in your own, individual names if you can. (The possibility of divorce is another reason.)

In some states, spouses (but not other surviving relatives) can be held responsible for the debt of a deceased even if it was not a joint account.

Authorized Users are Safe from Unpaid Debt

If you name a spouse or child as an “authorized user” on your credit card account, but they are not a co-signer, they will not be personally liable for the debt after you die.

Credit Cards and Mortgages in the Name of the Deceased Only: Debt Does Not Vanish

What about if you’re the sole account holder for a car loan, credit card or mortgage? Does that debt die with you?

Not really.

Creditors cannot come after your surviving heirs to pay the debt, but they can (and will) take the money out of your estate. Some money is exempt, including all assets that don’t go through probate. Creditors usually can’t touch:

  • IRA accounts
  • 401(k)s
  • Brokerage accounts
  • Life insurance

Money in those accounts will pass on to whoever you named as the beneficiary.

However, other savings accounts, homes and other assets are considered part of your estate and go through probate. At the very least, the creditors will take the money they are owed first, cutting a hole in your survivors’ inheritance.

If these assets are not liquid (such as a house) it can lead to big hassles for the executor of your will and any heirs.

For instance, imagine someone expects to leave their only child their house when they die, the house where the child grew up. The house is paid for, but the deceased left $30,000 worth of credit card bills, and not much in cash assets.

Now the child is stuck trying to sell a house in today’s real estate market to pay off outstanding credit card debt. Or maybe it’s the house itself with debt: a home equity line of credit or a reverse mortgage.

Either way, your wishes for your child to inherit the home won’t pan out.

Making Choices

For many retirees, especially those charging medical expenses, living off credit cards may seem like the only way. Some seniors (just like many other Americans) have just dug themselves into a debt hole and don’t see a way out. It’s nothing to be ashamed of, but there’s action you can take before it’s too late.

If you’re retired and in credit card debt, find a reputable agency through the National Foundation for Credit Counseling to help you create a plan to pay down the debt. Or at least talk to your family members so they know what to expect, financially, when you die.

Whatever action you decide to take is still your choice, but it helps to know the ramifications before it’s too late.

The editorial content on this page is not provided by any of the companies mentioned and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone. Additionally, the opinions of the commenters are not necessarily the opinions of this site


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