Are your credit card debts cancelled when you die or do they become the responsibility of your loved ones? This is a very important question, yet many credit card holders don’t know the answer. Here’s what you need to know.
According to Andrew Shaw, StepChange Debt Charity’s debt advice policy coordinator, the rules vary depending on a number of factors.
If you live in England and Wales, for instance, your debts can “die” with you in some cases. Sometimes creditors can write off debt belonging to deceased individuals or simply stop pursuing such debt; however, aren’t obligated by law to do so.
Also, some alternatives may be addressed in insurance policies. For instance, if the deceased has a policy that covers outstanding debt if they die, such policies can take care of credit card debt among any other debt the policyholder may have.
It’s also a matter of the type of debt. If the credit card debt has joint names, the responsibility of paying the debt is automatically passed on to the other person i.e., surviving account holder. However, most credit cards are issued for individual names.
Outstanding debt owned by a person when they die can also be repaid using proceeds of their estate. This is usually done in a probate process. If the money isn’t enough to repay the debt/s or the deceased estate is insolvent, a trustee is usually appointed to share the proceeds fairly among all creditors.
A creditor or representative of the deceased can get an insolvency administration order. In case the deceased has jointly owned property, proceeds of the property are shared depending on the nature of the joint ownership. If all parties had equal ownership, the property is transferred to the surviving owner and creditors can’t force a sale. However, the surviving person can be obligated to pay an amount equal to the deceased person’s shares if there is an insolvency administration order.
Creditors can force a sale to recover their money if the joint owners owned separate shares i.e. tenants in common. The shares of the deceased are treated as their estate in such a case.
If you think your home is at risk because of debt accumulated by a deceased joint owner, seek legal advice immediately. After the estate is dealt with, relatives of the deceased are not responsible for any outstanding debt.
Emma Gunn’s take
According to Emma Gunn of ThisisMoney.co.uk, family members should take some steps when a loved one passes on to avoid confusion with lenders as well as help settle any liable outstanding debt smoothly.
You’ve probably heard of companies or creditors who keep sending bills to deceased persons or fail to terminate accounts and then charge deceased persons late fees/penalties. Some creditors go as far as harassing loved ones.
To avoid such problems, it’s important for outstanding debt or credit contracts of loved ones to be listed. Contacts of banks/lenders should also be known in advance. Doing this is important when it comes to managing mortgage debt, credit card debt and student loans among other debt after the death of a loved one. The information should extend to insurance, savings and pension information to ensure there are no late fees among other charges added to existing debt or bills.
In most cases, you need documentation such as a death certificate to stop charges/fees, so it’s important to take extra copies when you register the death. You should also record when you contact creditors/banks, who you spoke with and file any correspondence in case there is a dispute in the future.
Remember to include utility companies in the list from mobile phone contracts to energy bills. Some utility companies don’t cancel contracts, but it’s worth asking. There may be an outstanding balance or due payments that can be deducted from the estate.
As mentioned above, the rules change for joint bank accounts among other joint credit accounts like mortgages or loans. Your partner may/may not be held jointly liable when you die.
The debt may be split, or he/she may be wholly liable. The key is; contacting creditors immediately. If you are struggling with payments, let the creditors know. Most will be willing to create a new repayment plan or offer repayment holidays.
Is the Company Director of Swift Money Limited.
He oversees all day to day operations of the company and actively participates in providing information regarding the payday/short term loan industry.