I'm not actually recommending that you run up your credit card balance before death but I thought that was a pretty catchy headline. Nevertheless, what I am about to tell you sure came as a surprise to me when I experienced it first hand (just to clarify...I did not die) and sure enough this article from CreditCards.com about what happens to credit card debt after death confirms my story. It's a pretty shocking loophole in the laws surrounding death, debt, credit cards, and inheritance.
As my parents, who lived in Texas, crossed the line a couple of years ago into being REALLY old I took over their finances and simplified everything. All tangible assets were liquidated as my parents could no longer drive and transitioned to a nursing home. All their financial assets were set up electronically, with automatic bill payments, manual electronic payments, e-statements, and regular downloads into Quicken. It all worked like clockwork - a real breeze.
Then, a few months ago, my father died (No, he did not pass. He died. That's what people do.) That, in and of itself, would not have created the problem I'm about to describe but my mother needed something to do. So she informed the credit card company that he died. Big mistake. All hell broke loose.
Apparently the credit card was in my father's name even though my mother and sister had signing authority to use the credit card. And apparently there are a bunch of credit card rules that kick into place as soon as someone dies. So, the first thing that happened was the credit card account was closed and my mother and sister couldn't use it any more even though their names were on the card. That really ticked me off. Then, much to my utter amazement and frustration, the credit card company cancelled the auto-payment, which struck me as a real boneheaded move since we had just put over $10,000 in funeral expenses on the card. If they had just left well enough alone everything would have worked fine.
What's really amazing about this sequence of events is that every other financial institution we have dealt with since my father died has required us to send them an original death certificate before they could take any action. But in the case of this credit card it's enough that my mother just tells them over the phone that my father died. Note to really pissed off spouses.
Well, this whole ordeal really freaked out my sister, who called the credit card company to discuss the matter. They couldn't discuss it with her because it turns out that they have this bureaucratic, nightmarish process whereby they immediately turn the account over to a collection agency to get their money. I guess the fact that they had access to our checking account and we had the funds and the intent to pay them in full just wasn't good enough for them. Go figure. So I told her to have the collection agency call me since I was paying the bills.
Eventually the collection agency calls me and it's obvious that their hands are severely tied by some kind of consumer protection laws. First, they tell me that I'm not personally liable for the balance due. Then they get all wishy-washy on me about exactly what they want us to do. It's like they're just bringing me up to speed on what's going on but clearly they're looking for me to volunteer to pay them. But I'm really irritated with this whole ordeal, plus I'm really curious as to how this whole death thing works for them, so I'm waiting for them to ask me to do something. Finally I ask them how they are supposed to get paid now that they turned off the auto-payment. I'm just messing with them.
The collector explains that the process is for them to go to probate court to get the estate to pay the bill. But there won't be any probate I explain since my parents have no tangible assets and all liquid assets are in trust. A moment of silence on the other end of the line followed by me asking them what kind of interest charges we are racking up. None. The law says that the account is frozen. Ahhhh....they have no leverage.
I don't exactly remember where we left things at that point but they certainly weren't demanding that I pay the bill and I wanted to see what happened next. A few weeks later I get another call from the collection agency who once again explains that I'm not personally liable for the bill. After we briefly discuss the probate situation again, without hesitation, the guy offers me a 30% discount to settle the bill right there and then. I'm flabbergasted. I did not see this coming.
But then I realize there are a few holes in this process. I have not seen the bill and how do I know these people are authorized to settle our debt? It turns out that only the credit card company can provide the bill and that will be a 3 week process and this guy wants to settle now. But they can provide me with proof that the debt is settled. And, oh...maybe they can give me more than a 30% discount!
We go back and forth on the details but he has to check with his boss. The next day the collector calls me back to finalize the deal. He wants me to pay by phone right now and he will get me proof of settlement and they'll get me the statement in a few weeks. I pay them but here it is a month later and I still don't have a copy of the bill so I don't feel so bad about them writing off a chunk of the debt.
Death Could Easily Wipe Out Your Credit Card Debt Entirely
If you read the page I linked to above it's clear that in a wide variety of situations the credit card company is just going to end up writing off the entire balance after death. That's why the collector was so anxious to cut a deal with me. They were lucky that they connected with someone willing to pay them without all the rigmarole of the court system. If my sister hadn't called them their collection notices would have just ended up ignored in a pile in my mother's room and they would have had no authority and no process for getting their money. Incredible but true.
Gary Lucido is the President of Lucid Realty, the Chicago area's full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider's view of the seamy underbelly of the real estate industry, or you just think he's the next Kurt Vonnegut you can Subscribe to Getting Real by Email. Please be sure to verify your email address when you receive the verification notice.