Deceased Spouse Debt: Who is Responsible?
How Is Your Credit Affected if Your Spouse Dies?
It's hard enough when you lose a loved one. Beyond dealing with the grief, there are often financial matters to address for the surviving husband or wife. A common issue is determining whether you're responsible for your deceased spouse's debt. For example, if they recently made a large purchase, are you on the hook for the credit card debt of your deceased spouse?
Clearly, debts don't just go away. As long as money is owed, someone will eventually be looking to collect. An important thing to remember, though, is that while marriage and credit can be related, it's not like the three major credit bureaus combine your credit report with your spouse's to average out a final score.1
Under the Equal Credit Opportunity Act (ECOA) of 1974, all consumers are given an equal chance to obtain credit.2 The ECOA prohibits discrimination based not only on race, creed or color, but also on your marital status. In fact, by law, they can't even ask you if you're widowed or divorced when you apply for credit. The only terms that can be used on a credit application are "married," "unmarried" and "separated."
When it comes to overall credit matters, who should be notified if my spouse dies?
Partly because identity theft has become such a significant problem in recent years, if you receive mail addressed to your late spouse, contact each of the three credit bureaus to let them know that your spouse is no longer living. You may also want to arrange for what's called a deceased credit closing letter (also known as "letter testamentary"3), usually written by the local court that has jurisdiction of your area. This will make things "official," just in case the Social Security Administration has not yet gotten around to informing each of the bureaus that your spouse has passed on. This way, you can help eliminate the risk of new credit being falsely established by someone else.
What are my financial and legal obligations for my late spouse's debts?
Although most contracts terminate when one party dies, it's a little different with credit and debts.4 Let's say, for example, that your late husband had a secured loan (i.e., a loan that requires a tangible asset, like a home, car or boat, as collateral) on a house. If it weren't for you (in this example, the decedent's widow), it's likely that the collateral item(s) would go into immediate foreclosure or repossession upon his death — unless another immediate family member made other arrangements with the financial institution that provided the loan.
So as the surviving spouse, you do bear the responsibility of dealing with your late partner's financial obligations. Banks, mortgage companies and other lending institutions understand that married people not only get separated or divorced, they also grow older and eventually die. As commercial financial institutions accountable to their shareholders, their position is that someone is still legally responsible for paying off active accounts.
There are usually two types of credit accounts — individual and joint — with joint accounts being the more common of the two for married couples. And no matter who actually pays the household bills, both spouses are responsible for seeing that all debts are eventually paid. When two people apply together to obtain credit, each of them is legally responsible to the creditor for the entire debt that has been accumulated.5 And just as a former spouse can adversely affect another spouse's credit history on a joint account by running up bills and not paying them, so too is a surviving spouse responsible for outstanding debts.
What about credit card debts? As the surviving spouse, are those mine too?
If you are the surviving spouse, you are legally responsible for your late partner's credit card bills. Just as other commercial financial institutions must be accountable to their shareholders when it comes to settling debts, credit card companies are also in business to make money. But there are exceptions.
These days, the average American family owes more than $8,000 in credit card debt, which likely means that more people are dying with outstanding credit card balances.5 And the laws governing credit card activity vary by state. In certain U.S. states, for example, the law indicates that a surviving spouse may still have to pay off credit debts even if there are no assets left in the estate to cover those costs. Yet, to use an alternate example, if your late husband gave you a credit card that you used but never signed an application for (meaning that it was solely in his name), you are not legally responsible for his credit card debts.6
The general rule is that creditors usually have six months to file a claim to collect unpaid credit card charges. And in cases where the surviving spouse can't pay the outstanding charges, the credit card company will make arrangements to collect from the estate — actually taking items (including luxury items, IRA accounts and even property) to offset the outstanding credit card charges. If, however, there is no estate to collect from, credit card companies can't pursue collections from the family. They can ask surviving family members to remit the credit card debt, but they can't legally force them to pay.
Conversely, if it's determined that the estate of the late debtholder does have existing assets, those funds must be used to pay off outstanding debts first — even before leftover funds can be distributed among rightful heirs.7
Bottom line: As long as there are outstanding debts to be paid, the surviving spouse is usually liable for them. For further information, including details about the applicable laws in your state, contact a licensed credit counselor. If you have been recently widowed, a credit counselor will be able to advise you on all financial and legal obligations moving forward.