What happens to credit card debt when you die?

When you're dealing with the death of a loved one, how you'll handle their debt is probably one of the last things on your mind. You can use this guide to find out how it works, who needs to pay and what the process is when dealing with credit card debt after death.

With so many variables, we have outlined what happens to credit card debt after death and the steps you can take to deal with it.

Secured and unsecured debt

The management of debts for a deceased estate varies based on which of the following debt categories it falls into:

• Unsecured debt. A credit card is a type of unsecured debt because it's not usually tied to an asset (such as your car or home). This means the bank has to go through court to access your estate and assets, which it'll use to cover the cost of your debt.
• Secured debt. A mortgage is an example of secured debt that is tied to an asset, such as a house. If you default on your home loan repayments, the lender is within their rights to reclaim possession of the house to recoup the cost of the loan.

How to deal with credit card debt if a spouse or relative passes away

Below are some simple steps you can take to deal with a deceased family member’s finances. We’ve also listed contact numbers for legal aid representatives in each state in the frequently asked questions section of this article. Refer to these contacts if you want to seek free, independent legal advice.

Step 1. Notify your bank

Financial institutions have deceased estate and bereavement specialists you can call to help you work through a difficult process. Here are the contact details you'll need to contact the deceased estate specialists at the Big Four banks.

Step 2. Give required documents to your bank

You may be asked to provide details of the deceased, as well as your personal information so that the bank or financial institution can provide appropriate assistance based on your individual circumstances. The financial institution may also want to see a certified copy of the death certificate and will. Document requirements vary depending on whether or not you can provide it.

Your financial institution may ask you to complete a “deceased estate notification form”. The information you'll need to provide for this form include:

• About you. Name, relationship to the deceased, address and contact information.
• About the deceased. Name, address, date and place of birth.
• If there is a will. A copy of the will and the death certificate.
• If there is no will. Something to prove you’re the next of kin such as a letter of administration.

A bank branch manager may be able to assist with on the spot certification of original documents if you take them to a branch.

Step 3. Bank’s assessment

Here, the financial institution will review the deceased’s estate. They will look at current debts and assets, including outstanding credit card debts and savings account balances. If there are outstanding debts, the bank will make an attempt to reconcile the debt with available assets from other accounts. This includes accounts held by the deceased outside of the bank’s network, such as their superannuation funds.

Step 4. Release of funds

If there are sufficient funds to cover the deceased’s credit card debt, the bank will pay the liability first and release any leftover funds to the beneficiaries. If the deceased’s assets are less than the amount owing, the financial institution may contact you to arrange a payment plan. This usually involves a freeze on the interest rate so that interest charges stop compounding. In some circumstances, the bank may write off the debt. If the debt is more than $5,000, the executor, next of kin or creditor can request to bankrupt the estate.

What do you know about funeral insurance?

Credit card debt can be paid from a range of sources linked to the deceased’s estate. Most superannuation accounts, for example, offer some form of life insurance that offer a benefit that covers debts leftover when the account holder passes away.

There are plenty of options available to help you deal with credit card debt after the death of a spouse or relative. If you're unsure which strategy is the most appropriate, contact your bank or legal aid to discuss your options.

Find out how life insurance can help your family cover your debts if you pass away

Frequently asked questions

What legal aid numbers can I call for help?

Free, independent legal advice is available in your state through various government-run and not-for-profit legal associations. Consider these organisations if you’re looking for legal help to deal with a deceased estate. Your bank may also be able to assist.

Who else can I call for help?

• The Australian Centre for Grief and Bereavement
• The Births, Deaths and Marriages Registry
• Australian Funeral Directors Association
• Beyond Blue
• Lifeline

What if there isn’t a will?

If the deceased has not left a will, you will need to apply for a letter of administration or probate to prove you’re the next of kin and eligible to administer the deceased’s estate.

What about joint bank accounts?

If you have a bank account in a joint name, ownership of the account will be transferred to your name once the financial institution receives notification about the deceased.

How do I get the probate grant?

Apply for the grant of probate through the Supreme Court. You must have this document if you’re dealing with estates greater than $50,000 in value.