Secured and unsecured debt
The type of debt someone has can have an impact on how it's managed when they die. Here's a breakdown for the 2 main types of debt:
- 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 if a debt is unpaid and remains unpaid, the bank has to go through court to access your estate and any assets that it could then use to cover the cost of your debt (if the court ruled in its favour).
- Secured debt. A mortgage is an example of secured debt that is tied to an asset, such as a house. If someone defaults on their home loan repayments, the lender is within its rights to reclaim possession of the house to recoup the cost of the loan. If the default is due to a death, the lender may offer support and other alternatives, so contact it as soon as you can.
Hi, I am helping to support a lady who is wondering what happens to her credit card debt when she dies – she is currently undergoing cancer treatment. she has no savings or any WILL, she has 2 credit cards that in total owe about $8000. she has funeral insurance which will cover her funeral and leave some. am I right in my thinking that the bank will ask for the money from the funeral insurance to pay off the credit card debt?
Hi Allison,
Thanks for getting in touch and sorry to hear about the lady you’re caring for. Kudos to you for being so nice to her. When she passes, her estate is usually responsible for paying off any remaining debts you have. If the credit card debt is only in the name of the deceased cardholder, the liability will be paid out of the deceased’s estate. If there’s not enough money to cover the cost of the debt, the creditor is likely to offer the next of kin a payment plan or the opportunity write off the debt. If the debt exceeds $5,000, it is possible for the executor, next of kin or creditor to bankrupt the estate.
To help you further, there is free, independent legal advice available in your state through various government-run and not-for-profit legal associations. You can find the name of the organizations and numbers on our page above. Scroll down on the page and find it in the FAQs.
Hope this helps!
Best,
Nikki
I have been separated from my husband for almost twenty years, but not officially divorced. Can I be held liable for any outstanding debts he may have when he dies? Would the law consider me his next of kin?
Hi Lila!
Thanks for your inquiry.
Most of the time, you may only be held liable for your spouse’s debt, if you are a joint accountholder. You may get contact with our specific legal aid representatives in your state, by checking our FAQ on our guide, “What happens to credit cards after death.”
Hope this clarifies.
Cheers,
Jonathan
My husband is the primary card holder. I have the card too & can use it independently. What happens to the outstanding balance should he die. We are pensioners & live in a village with a 45 year lease. Will I or my family be responsible for the debt. We do not have any super or savings
Hi Maggie,
Thank you for your inquiry.
If the credit card is in a joint account, the other primary cardholders will be liable to pay the remaining outstanding balance. If the credit card debt is only in the name of the deceased cardholder, the liability will be paid out of the deceased’s estate. If there’s not enough money to cover the cost of the debt, the creditor is likely to offer you a payment plan or write off the debt.
I hope this information has helped.
Cheers,
Harold
My daughters dad died she is next of kin he has a mortgage of 250000 and credit card debt of 40.000 the house is worth 400000. does it come out of the estate
Hi Caroline,
Thank you for your inquiry.
Basically, if the cardholder dies, the remaining outstanding balance on his card will be paid out of the deceased’s estate. You’d be best to get in touch with the bank to help you with working out this matter. Alternatively, if you want to seek for a free independent legal advice, you can contact the number (in your relevant state) listed in the FAQs section above.
Cheers,
May
Hi there,
My Dads de facto recently passed away quite suddenly and has left behind 15k in credit card debt . They were both pensioners and there is no money left in her estate, the only asset she owned was half of the house they bought together, her will states that the home becomes my fathers until his death.
My father doesn’t have the funds to pay the credit cards and is now worried the credit card companies will force him to sell the only asset which is his home, can you tell me if this is a likely scenario.
Thanks
Hi Christine,
Thanks for your inquiry and I’m sorry to hear about your family’s lost.
If your father happens to be a joint account holder or co-signatory, he will become solely responsible for the debt and should shoulder the monthly repayments. If not, what he needs to do is to immediately contact the credit card company to inform them about his spouse’s death and ask that any interests be frozen so that the debt doesn’t continue to increase.
Although there is no absolute assurance, in case that the debt is greater than the assets left behind, sometimes, the credit card issuer will be forced to write off the debt as a loss. But before they do that, they will still do everything they can that the debt should be paid off. So it’s best that you help your father contact the card company and see what would be their advice and his options as well. He can also prepare a copy of her death certificate if the credit card company would need it.
I hope this could help.
Cheers,
May