Livens & Reed, PLLC

How credit card debt affects estate administration

It is not uncommon for consumers in Texas and around the nation to struggle with credit card debt. The problem is so widespread that many people carry debt for their entire lives. Some of them may wonder what will happen to this credit card debt at the end of their lives. Will their heirs be responsible for paying it or does it simply disappear? The real answer lies somewhere in between as part of the process of estate administration.

Settling a person's estate after they die is known as probate and it is up to the estate's executor to ensure that happens. The executor is typically someone chosen by the estate owner who will handle all financial matters after the owner has died. The executor has to inform credit card companies that the owner has died in order to determine if there are any outstanding debts that need to be paid. The assets in the estate may end up being used to satisfy this debt. Anything left over generally gets passed on to heirs, but if the amount of debt exceeds the estate, then the excess is typically written off by the lender. 

Certain assets aren't subject to this proceeding though. This includes a 401(k), an IRA and life insurance. The only way that heirs may be responsible for the debt is if their name is on the credit card account or, in the case of married couples, due to rules of community property the debt is shared equally.

The best thing a person can do is ensure that his or her estate plan is up to date and that heirs are aware of any possible credit card debt. Those here in Texas who don't have a plan or want to create one may want to consult an attorney who understands the complexities of estate administration. It can help an estate owner feel secure in the knowledge that his or her assets will be handled as desired.

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