If a relative or spouse passes away, it's important to know who's responsible for their credit card debt after death.
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. Unfortunately, the reality in Australia is that the spouse or children will most likely become responsible for that debt. If you've found yourself in this situation, 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.
Who is responsible for credit card debt after death?
When you die, your estate is usually responsible for paying off any remaining debts you have. 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.
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. Credit card debt is a prime example of unsecured debt because a credit card is not tied to an asset (such as your car or home). With this type of debt, lenders have limited recourse to claim your assets if unsecured debt is left unpaid. These factors are partly why interest rates and fees can be so high for unsecured products.
- 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.
|Bank||Bereavement / Deceased Estate Number|
|ANZ||1800 237 170|
|Westpac||1300 130 240|
|Commonwealth Bank||1800 686 153|
|NAB||1300 911 451|
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.
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 may offer a benefit that covers debts leftover when the account holder passes away.
How to deal with credit card debt after the death of a spouse
George and May lived in Sydney. George suddenly passed away. He left everything to May in his will, including a $10,000 credit card debt. The home was in both their names, and when he died, ownership of the property automatically passed to May. This meant the family home was excluded from George’s will and exempt from any claim by creditors (even though the bank can not claim an asset like the family home to cover an unsecured debt).
George also had a superannuation fund balance of about $800,000. He was a member of a MySuper fund, which included insurance with a death benefit. George’s solicitor handled the settling of George’s estate and the $10,000 credit card debt was paid to the bank from his superannuation death benefit. The remaining balance of his assets went to May.
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.
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?
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 received 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.