Dealing with Credit Card Debt After Death of Parent
Losing a parent can be overwhelming. In addition to dealing with your grief, you may find yourself struggling with a number of questions that compound your stress and ability to move forward.
As their relative and next of kin, are you responsible for their outstanding debt? What are your rights and your obligations as their child? There are a lot of money issues that surround death inevitably, like paying taxes, paying for a funeral and dividing up a deceased person’s estate. Have you discovered that your parent had outstanding debt? Is debt part of your inheritance? Are you worried how you’ll be able to afford their debt in addition to your own?
Most importantly, are debts transferable? The short answer is no, but there is a lot more to the process when you are dealing with a deceased family member’s debt.
“It can be hard enough to lose a parent, but when you are concerned about having to absorb debt that they were carrying, it can be extremely difficult. It is common for creditors to try to collect payment from family members after an individual dies, so it is a good idea to know what your obligations and rights are and how debts work,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Have you lost a loved one and are worried that their debt load might transfer to you? This can be worrisome, especially if you are struggling with your own debt. To learn more about debt relief, call us at 1-844-329-7254 or get started with our free online debt analysis.
Can you inherit your parent’s debt?
Debts are not transferred from person to person in the event of death unless you have signed for the debt (i.e. if a debt is joint, or if you are a co-signer). When you hold a joint debt, you are equally responsible for the debt.
Simply because you are your parents’ next of kin or even if you are the beneficiary of their estate does not make you responsible for their debt load. That said, the process to repay debts after death can be complicated.
Setting up the estate
After your parent dies, their estate will be set up. The estate will be run by the executor or administrator. Usually, if your parent had a will, they would have designated an executor (which may very well be you). If they didn’t have a will or didn’t designate an executor, the courts will eventually appoint one.
Among other things, it is the job of the executor to notify creditors of your mom or dad’s death. It is also a good idea to order a copy of your parent’s credit report so that you can get a full understanding of the outstanding debt. At the same time, you can notify credit bureaus (i.e. Equifax, TransUnion) of your mom or dad’s passing to prevent identity theft of the deceased, which unfortunately is a common occurrence.
Checking on insurance
Before you proceed any further, investigate if your parent had life insurance on the credit cards in question. It is common for people to have a balance-based life insurance policy, which would cover the outstanding balance in the event of their death. That could help deal with the debt that they’ve left behind.
Debt and the estate
Although creditors are not able to collect the money that they are owed from you, they will try to collect their money from a deceased person’s estate. Even if your mom or dad named you in their will to receive as the beneficiary of their assets, by law a creditor would have access to these assets ahead of you in order to receive their payment.
Once the creditors have received proof of death, they will submit proof of their debts to your parent’s estate to try to collect the money. There is a priority list for debt repayment. Secured debt (i.e. car loan, mortgage) gets paid first. Unsecured debt (like credit cards) gets paid next.
What if there isn’t enough money in the estate?
If there isn’t enough money to repay the debts, creditors tend to close out the accounts and drop pursuit of repayment. However, realize that in that situation, you won’t be inheriting any assets, because they would have been exhausted by creditors trying to collect on their debt.
Know your rights
If you do receive calls from creditors trying to collect on the debt, realize that you aren’t liable (unless you took out a joint debt with your parent) to repay them. If the estate has been closed out (i.e. because there weren’t sufficient funds to repay) be prepared to show documents to the creditors that show that the estate is insolvent.
“Also realize that there is a difference between joint debt and being an authorized user on a credit card account. Your parent may have added you as a user on their account for any number of reasons and ordered a secondary card, but that is different from being a joint account holder. Being a secondary user does not make you liable for the debt,” says Schwartz.
Dealing with stress
Some of the most stressful situations that you can encounter in life include losing a loved one and dealing with money troubles. When you experience the stress of grief along with the stress and anxiety about dealing with debt at the same time, you can experience significant emotional and physical problems.
Don’t be shy to seek help, whether from friends, other family members or support groups in your community. If you are suffering the physical and/or mental impacts of stress, see your doctor for help to get you back on your feet. Also, reach out to financial professionals whom you trust to help you sort out your finances and to provide you with accurate information about what your responsibilities with debt.
Paying down your own debt will ease your own stress. To find out how you can do this, contact one of our trained credit counsellors at 1-844-329-7254 or check out our free online debt analysis.