Can Credit Card Companies Take Your House If You Died ?

If death occurs by some misfortune while you had accrued credit card debt that isn’t paid back after your death, then credit card companies generally cannot take your house because a lot of factors come into play that either deter or outright prevent creditors or debt collectors from putting a lien on your house.

In fact, even if you’re alive and well but cannot pay your credit card debt, creditors or debt collectors would be unable to get a lien on your home equity for your essential or primary residence in all the states except New Jersey and Pennsylvania. It’s called Homestead Protection. In addition to your house, a number of other assets also enjoy protection from creditors’ take-over. 

Assets that are legally protected from creditors in the event of death:

• Retirement Accounts
• Brokerage Accounts
• Life Insurance income
• Asset holdings in living trusts
• Homes (primary residence, depending on the state)

According to Experian File One, 73% of Americans are likely to die in debt and most of it is in the form of credit card debt. On the other hand, the average outstanding debt at the time of death stands at $62,000.  

What Happens to Your Credit Card Debt After You Die?

After you take a leave for good from this world, any outstanding credit card debt will be paid out of your estate before it’s passed on to your heirs. Your estate refers to the total of all assets you possessed at the time of your death, whether it’s investment, savings, property etc. 

The debt payment out of your estate will be carried out by an executor of the estate. You can either appoint someone as the estate executor in your will (it can be a person of your choosing, like a family member, relative or friend). In case you didn’t leave a will or estate plan, an executor will be appointed by probate court. 

If your debt exceeds the equity of your assets, your estate would stand Insolvent, which is basically a technical way of saying your assets cannot cover your debt. This is where things get going and depending on the situation, either your debt would be written off, or your spouse (if any) or cosigner (if any) will have to pay your debt. 

Two Scenarios Where Others Have to Pay Your Credit Card Debt If You Died

1- Community Property States

states i.e Idaho, Nevada, Texas, Arizona, New Mexico, Washington, Wisconsin, California and Louisiana to be specific, are called community property states where the spouse of a deceased credit card debtor is liable to pay their debt. On the other hand, Alaska  provides spouses with the option to make their property community. 

2- Cosigning

If you had applied for a credit card with a primary cosigner then they’d be liable to pay your credit card debt in case you die. 

However, if you neither had a cosigner nor live in a community property state and if your estate is insolvent after you die, then no one is liable to pay your debt, your house will not be taken and creditors will write off your debt as loss. 

What Family Members Should Do in the Event of Death

1- Stop Using Deceased’s Credit Card If You’re an Authorized User

If you’re an authorized user on the deceased’s credit card, you should immediately stop using it because using a deceased’s credit card as an authorized user is legally considered fraud since they’re no longer around to pay their debt.

2- Report the News of The Card Holder’s Demise to The Credit Card Company

You’d want to make a list of the deceased’s credit card accounts and notify the credit card companies of the demise and get them to close their accounts. If you’re unsure about the credit card accounts the deceased had opened, you can request their credit report to get the necessary information.

3- Notify the 3 Credit Bureaus 

Typically, the credit card companies would take care of this but you might not want to wait in order to safeguard the deceased’s identity against identity theft for credit cards. 

The 3 credit bureaus include Experian, Equifax and TransUnion. You’d have to provide the credit bureaus with the copy of the deceased’s death certificate as well as their social security number.