If someone leaves behind credit card debt after death, executors are often tempted to pay it – especially when aggressive creditors start calling. And while people may think they are being proactive and responsible by taking care of various bills, some end up with an even more complicated mess. The truth is that if the estate is insolvent, the credit card is just about the last bill that should be paid after death. Why? Because of something called “Priority of Payments.”
What this means is that insolvent (more about that in a moment) estates are required to pay certain debts in order, and paying them willy-nilly can cause big problems. Once you have determined the solvency of an estate, here are some tips to help you decipher which debts to pay first to avoid a lot of headache later.
Always check your local and state laws
Priority of Payments for credit card debt after death can differ depending on your location. This includes both state and local laws, so it is essential to look up the laws before you do anything else. The most reliable sources and documentation are from a local or state government website. However, these websites can be hard to find even when you aren’t in a state of grief.
A few tips: When using a search engine, type in ‘probate administration’ with your state and find a website ending with (dot)gov or (dot)us. There should be a separate tab covering the laws where you live. Search also for your state's insolvency law.
Gather all financial and other records
To get a sense of what you are dealing with, all records that pertain to the estate need to be tracked down, collected, and calculated. This means documents like bank statements, insurance information, tax records, etc. This is critical in determining if the estate is solvent (an estate with means to cover all debts) or insolvent (an estate with insufficient means to cover debts). Insolvent estates are required to follow Priority of Payments, and may not need to pay all debts.
Take care of number one
Once an insolvent estate has the information needed to start paying priority expenses, you must always start with the first priority on the list, and paying credit card debt after death probably isn't up there. Common first priorities include estate administration expenses, and often home mortgages. Taxes and credit card bills tend to appear lower in the list. Don’t be tempted to pay credit card debt after death just because creditors are calling!
Ensure you are going in order
Paying out of order will cause you to be personally liable for paying expenses you may not otherwise have had to pay. For example, let’s say you pay for priority number eight before all other priorities. You may now be responsible for paying all previous debts on the list – 1 through 7 – when you may not have had to pay them at all!
Check the maximum funds limit on each priority point
You may find that some priorities have a cap on the amount that can be paid at a time. For example, your state may say that funeral expenses may not exceed $4,000 or that hospital expenses are only covered up to $2,500 per hospital or other care facility. If the bills cannot be completely covered the first time down the list, don’t worry about paying them completely until after the next priorities down the list are paid. Anything else may be covered by what is left over from the estate after (or if) all other debts have been paid.
Don't let credit card and other companies issuing smaller bills harass you
Don't allow companies to hassle you into paying any bills immediately. Utility bills and credit card debt after death are often last priority (and potentially not your responsibility to pay).
Remember, if you are not the executor of the estate, you may refer creditors and other bill collectors directly to the executor and ask to be removed from their call lists. Check your local and state laws for exceptions.
Credit card debt after death is a bit confusing, because the credit card companies are often the pushiest about collection. But that’s only because they know they might not be able to collect their debt in full. Hold them off until you know for certain whether or not this debt needs to be paid.