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How credit cards work after death
Posted on February 5th, 2010 No commentsLarge unpaid credit card balances can cause large problems for estates.
Although most debts that are not secured against an asset will not pass on to the beneficiaries of a will if they are greater than the estate they will be set off against any property in the estate and reducing the estate’s value.
An exception is that of co-signatories. A growing number of adults act as co-signatory with their retired parent, and in most cases this is not a problem particularly if the account is monitored and the credit limit is manageable. There are tragic cases where a teenager or student dies before their parents who have co-signed the cards and in these cases it is probable that the debts will exceed their assets. Again this is manageable as long as the credit limit is kept to a manageable level.It is however rare for cases of death where there is a large credit card debt to involve co-signatories. Usually large credit card debts are built up by people who have some income and so are both able to service what is a large credit card balance and who have no need for a co-signatory to get a large amount of credit.
If this is the case then it is vital to know how big the debts are as soon as possible. It is rare for a credit card company to be aware of the death of the holder of the credit card, and even if there is some reason to believe that they are aware then it is still a good idea to tell them as it is better to be sure in these circumstances.
All credit card providers should be written to in order to notify them of the death and a request should be made to freeze the interest. Even if the request is not met (it is quite likely that the counter offer of capped interest will be made in return for quick repayment) then this does not have the same effect as it would if a living borrower requested this as there is no worry about future borrowing or a credit score. If the interest is not frozen then it is a good idea to repay this early as the compound interest can mount up and seriously deplete the value of the estate.
There are limited situations where credit cards are secured against a property. These will be paid off when the property is sold. However if there is a desire to keep the property within the family then the debt must be paid off before it is transferred.
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