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How to Deal with Debt When a Loved One Passes Away

Unfortunately, most of us have to deal with the loss of a loved one at some point in our lives. And the loss itself, while hard enough, sometimes comes with issues that make that challenging time even more difficult.

It is something that needs to be considered, and an honest and potentially uncomfortable conversation should be had with your family members. A plan should be put in place to ease the major adjustment in one’s life. A surviving spouse or children face more than just overwhelming emotions — they may also face the challenge of having to settle a loved one’s outstanding debts.

The average age of widowhood is 55 years old, according to the US Census Bureau. This raises an obvious challenge of a woman potentially having to deal with finances on her own, some 10 years before the average age of retirement.

Credit Card Debt

With a joint account (in other words, both spouses' names are on the account), the debt is considered to be that of the surviving spouse, who is then responsible for settling any outstanding balance along with (or instead of) the deceased’s estate. Moving forward, the surviving spouse can either close the account or re-title it in his or her name.

In situations where the surviving spouse is merely an authorized user (in other words, a “second cardholder”), the debt is considered to be that of the deceased, and the surviving spouse is generally not responsible for payment. In this case, the deceased's estate may be liable for settling the debt.

Ultimately, any debts that the surviving spouse is not responsible for is paid by the deceased's estate. The person designated to settle the estate (the executor) pays off the debt using whatever assets are in the estate. Note, that in the case of debts that are solely those of the deceased spouse, creditors cannot demand more than the value of the estate. For example, if the credit card debt is $10,000 but there is only $2,000 left in the estate, the credit card company may have to write off the remainder.

Identity and Security

To keep identity thieves from taking undue advantage of the open credit file of a deceased loved one, it’s advisable to immediately alert credit-reporting agencies of the death. Add a "deceased notice" and a "Do Not Issue Credit" statement to the file.

Any other creditors (auto loans, banks, etc.) should also be notified of the death. They will likely require certified copies of the death certificate.

Your Rights

The time following a loved one’s death can be overwhelming. Many people have never had to deal with the complexities of settling with creditors and closing accounts before. But there are some protections during this trying time.

For instance, the Credit Card Act of 2009 prohibits credit card issuers from charging late fees or annual fees while the estate is being settled. [3] Likewise, Federal Trade Commission guidelines limit the practices debt collectors can employ when trying to get money from the deceased’s relatives. 




Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC.

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