October 18

Probate Credit Card Debt

Cortes Law Firm Oklahoma City Estate Planning Attorney

Probate Credit Card Debt

What to do if you're an heir and your loved one left behind probate credit card debt? Some people inherit a great deal of money and assets, but what happens when they died with outstanding probate credit card debt balances and other debts? If you're an heir to this situation, there are steps that can be taken to help manage the probate process.

This is a question that we get from almost every son or daughter who comes into our office needing to probate their parent's estate, and that is, are they responsible for their parent's probate credit card debt or other debt?

And the short answer is no. Only the estate is responsible for credit card debt. However, the long answer is that credit card debt will most likely get paid out of the estate assets.

So let me explain how this works. As you know, there's different types of debt. They're secured debt and there's unsecured debt.

A secured debt is something like the mortgage on your house or maybe a lien on a car until it's paid off a car loan, correct.

Unsecured debt is a credit card. They just give you credit and you're free to spend it however you want, as long as you pay them back . Right. So generally, what happens in a probate if there is a house or there is a car?

Those debts are secured by the assets that they're connected to. So, if you have a mortgage, obviously, it's a mortgage on the house. And if we're going to sell the house, during the probate process to a third party, when you go to the title company to close on that house, the title company will make certain that the mortgage is paid off so that the new buyers, those third-party buyers, have clear title.

And there are no Liens or mortgages on the house. The same thing can happen with cars. Usually the heirs, a son or daughter who come into our office, will sell the car and use the proceeds to pay off the lien on the car in the usually, unfortunately, with cars.

The amount owed is usually pretty close to whatever the purchase amount is. Right, because car loans are much shorter than mortgages. And so, there's just usually a lot more debt associated with a car.

However, credit cards are completely different. Those are unsecured debts. And the important thing to remember here is that unsecured debts or really any debt of the estate is not your debt.

If you’re probating your mother or father's estate or even somebody else's estate with a probate attorney, in other words, you're the executor or the personal representative of their estate, you are not responsible for that debt. It is the estate that is responsible for that debt.

And if there is no money in the estate, there is no money in the estate. And unfortunately, that sometimes happens, especially with the unsecured debt, because we know that the house is going to sell and that can get paid off.

The car is going to sell, and that loan can get paid off. But if there's no money left over to pay the credit cards, then they are not going to get paid off. Unfortunately, some credit card companies, or debt collectors will start to call the heirs, the sons and the daughters and make them feel like they are personally responsible for their parents' credit card debt.

And that is simply not true in almost all jurisdictions. So, again, you should check with your probate attorney near you regarding credit card debt. In almost all cases, credit card debt belongs to the estate and not to the person or to the heirs.

Now, I said in the long run, it probably would get paid off. So let me give you an example how that credit card debt might get paid off. So, let's say that the parents own a house that they bought many, many years ago and there is a very small mortgage on itor no mortgage whatsoever. In other words, it's paid off.

And there is also credit card debt of, let's just say, fifteen thousand dollars or twenty thousand dollars. Why not? They were big spenders, and they were paying their debt off every month.

However, once they passed away, nobody was making those payments on that unsecured credit card debt. But remember, there is a house that is almost completely paid off or paid in full. Let's say that they sell that house for two hundred and fifty thousand dollars.

And it did actually have a mortgage on It for fifty thousand dollars. So, the estate will net two hundred thousand dollars into the estate bank account once the house closes. But what's important here is that the estate now has two hundred thousand dollars cash in the estate bank account to pay off whatever other debts there might be or expenses that are might be related to the probate.

Well, what are those kind of costs? Funeral costs are one of them costs in administering the probate like attorney fees and the court costs and all the associated costs and expenses that go along with probate in in the estate. And those are all also coming out of that estate bank account.

And if there are credit card debts, then the personal representative or the executor, depending on which jurisdiction you're in, will look at those particular credit card claims and determine whether or not they are valid.

I will tell you guys, usually they are. And once that determination is made, then usually in most jurisdictions, the personal representative or the executor needs to go to the judge and ask the judge for permission to pay that with credit card off so they will take the money that's in the estate bank account and pay off that credit card debt of twenty thousand dollars.

Now, remember, at this point, it's all coming out of that estate bank account. So, none of that money has gone to the heirs so far. The next step is to get that credit card company to issue a release of claim. In other words, releasing the estate from that twenty thousand dollar claim. 

Personal representative or executor has paid the claim, and now the credit card company needs to give a release to the estate that says that that debt is no longer owed, very important.

Once all credit card debts have been paid and all other expenses have been paid on the estate, usually in most jurisdictions the executor or personal representative will issue what's called a final account, and they will set it for a final hearing in which at that point the judge will order distributions of whatever assets are left.

That's very important because that doesn't happen until all debt of the estate is paid. And that's why I tell sons and daughters, you're absolutely not responsible for your parents' credit card debt unless, of course, you are a cosigner on the debt, but you are not responsible for their credit card debt.

But ultimately, if there is enough money in the estate, that credit card debt will get paid off from the assets, from the liquid assets in the U.S.

Bottom line is, don't allow the credit card companies and the debt collectors to bully you into trying to pay off or making you think that your parents' credit card debt is your credit card debt. It absolutely is not. It belongs to their state.

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