What happens to credit card/student loan debt after a death?

It’s been several months since a loved one passed away and a collection letter arrives at your door. It asks you pay a $2,500 balance that your mother left on her credit card. Or the creditor might be ACS Education Services looking to collect $30,000 on a student loan that your adult child left behind after an accident.

Do you need to pay this amount? In most cases, you do not inherit a relative’s credit card or student loan debt. If their estate does not have the funds to pay the debt, the creditor will have to write it off. In this post, we’ll discuss a couple exceptions that may leave you on the hook for debt.

Joint credit cards

If you and a spouse were joint account holders, you are responsible to pay the full debt. This is the case, even if your spouse was the only one who used the account.

Co-signing on a credit card application is different than requesting an additional card for a spouse added as an authorized user. An authorized user is not required to pay the outstanding credit card balance. But be aware that an authorized user would still need to pay for charges made after a death.

Cosigning on a private student loan

It’s a typical situation that a parent may be asked to cosign a private student loan used to pursue a graduate or professional degree. As many as 9 out of 10 private school loans are cosigned. Under existing law, private lenders do not have to forgive outstanding student loan debt after a cosigner (an adult child) dies.

Generally, these lenders will attempt to collect from the estate of the borrower. But then they may go after a cosigner, who becomes liable for the full remainder.

New Jersey recently took steps to prohibit this from happening. An investigation into the collection tactics of some lenders brought the issue to the attention of the state legislature. Now death and disability policies for private student loans in the state follow federal student loans – this policy is basically “when you die, your loan dies.”

Few people know what debt they must pay after a loved one passes away. Creditors often use hard-ball tactics and rarely provide all the right information. During an emotional time, this is the last thing that you should be dealing with. Discuss the situation with an experience attorney who has handled estate administration issues before taking any action.