TechnologyHere's what happens to credit card debt after death
Canada Sees Big Jump In Consumers Going Bust
The Bank of Canada may be pulling back on hiking interest rates, but Canadians are still dealing with the fallout from the rate hikes we’ve already seen. Consumer insolvencies in Canada jumped by 9.3 per cent in April, compared to the same month a year earlier, according to data from the federal Office of the Superintendent of Bankruptcy. The number includes both consumer proposals and bankruptcies. Consumer proposals are an increasingly popular alternative to bankruptcy, where the debtor works out a deal with creditors to pay a portion of their debt.
When a family member dies, you may suspect that all their debts expire as well. However, this couldn't be further from the truth. In fact, sometimes families inherit more than family heirlooms; they inherit their loved one's credit card debt.
This isn't always the case, however. When the resources are available, the estate pays credit card balances and other debts . This can work out rather well when someone has enough assets or savings to cover all their remaining debts when they die. But when a person dies with more debts than assets to pay them, creditors can be out of luck -- and they often are.
Delinquency rates rise as Canadian credit card balances grow
Delinquency rates in Canada climbed to the highest in two years as consumers added to credit card debt and auto loans took longer to pay off, according to Equifax Canada. The 90-day delinquency rate gained to 1.12% in the first quarter, up slightly from 1.08% in the same quarter a year earlier, the country’s largest credit reporting firm said Tuesday. Delinquencies rose the most among those 65 years old and over, while British Columbia and Ontario saw the first “significant” increase in arrears in half a decade, the firm said.
Joint cardholders beware
The thing is, there are exceptions that could leave you on the hook for someone else's credit card balance after that person's death. The most common example is any situation where you're a joint cardholder - or someone who co-signed on the credit card account. Parents sometimes do this for children who are just starting out, or adult children will co-sign with their elderly parents, perhaps to help keep track of expenses. In either case, you're on the hook for remaining balances as a joint cardholder -- whether you're the one who made purchases with the card or not.
Unfortunately, not everyone knows which credit cards are on their own profiles.
"Sometimes, people can be on a credit card and not even know it," says Pennsylvania attorney Linda A. Kerns. "Maybe when they filled out the credit card applications, (the joint cardholder) didn't even tell them." These accounts could show up years later, at the time of a death or divorce.
Premium credit cards: how to get the annual fee waived
If you want to keep your premium credit card but not pay a fee, the first step is to call your credit card company. Politely tell the customer service representative that you are considering cancelling your card, and was wondering if there were any retention offers available. Ask to be transferred to the retention department as retention officers have the power waive your fee. Keep in mind that it is the retention officer's job to keep you as a customer, but have you pay the fee. A common tactic used is to have the customer use their points to pay the annual fee. I always decline this "offer" as it is a terrible use of my points.
"I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event," says Kerns.
Keep in mind, however, that joint cardholders and authorized users are not the same things. If you're only an authorized user on someone's account, then you're not liable when the cardholder dies.
Related video: Some Americans Don’t Know If They Have Any Credit Card Debt (provided by Buzz60)
When the estate loses, beneficiaries lose
Even if you are not held personally liable for the debt on a credit card, you'll feel the effects of it if you're a beneficiary of the estate. That's because debts will be paid from the estate before beneficiaries receive any distributions. In other words, any debts left behind when a loved one passes away can easily gobble up any of their remaining assets, leaving beneficiaries with what is left (if anything at all).
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Also, note that there is a specific time period for creditors to file a claim against the estate. When an estate is probated, creditors are also prioritized. Credit card debt is unsecured, unlike a mortgage which is secured by property, or a car that is secured by the vehicle. For that reason, it's likely the credit card company will be at the back of the line when it comes to paying debts from the estate. And, like it or not, beneficiaries are often even further down the line than credit card companies.
Steps to take when a cardholder dies
When someone dies, the task of notifying financial institutions and closing credit card accounts can easily be forgotten or pushed aside. Unfortunately, plenty can go wrong if these important tasks are neglected.
For example, identity thieves may troll obituaries and online records looking for recently deceased persons they may be able to impersonate to create new accounts. Hackers may also look for ways to steal from existing accounts of the deceased, which you may not notice if you haven't notified banks and card issuers of the death quite yet.
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It was a period in her life that still makes Shannon Lee Simmons squirm. Even so, the financial expert chose to disclose her own money mismanagement in a very public way. It’s right there in Simmons’s new book Living Debt-Free: The no-shame, no-blame guide to getting rid of your debt (HarperCollins). “I had racked up $8,500 worth of credit card debt over 12 months and had emptied my RRSP to pay it down,” the certified financial planner writes in describing her “meltdown” when everything came to a head 10 years ago. “Heartbroken and ashamed,” she had committed a “financial cardinal sin” by pulling $13,000 from her savings before retirement, resulting in a $4,000 tax penalty.
Here are six steps you should take when a cardholder dies that may prevent these issues and plenty of others:
If you know before someone dies that you will be the personal representative or executor, you should start putting systems in place to make your job easier when the time comes. Start by organizing all the person's financial accounts. If you're a court-certified representative or surviving spouse, you can also request a copy of the deceased's credit report, which lists all accounts in their name.
Prevent further credit card use
When someone dies, his or her credit cards are no longer valid. For that reason, you should never use them or let anyone else use them -- even for legitimate expenses of the deceased, such as a funeral or their final expenses. Collect all credit cards from people who may have them, including any authorized user cards, and put them in a safe place or destroy them.
Get multiple copies of the death certificate
You will likely need to get several official copies of this document to send to credit card companies and life insurance companies and for other estate purposes. While the funeral director who handled the burial or cremation of your loved one can help you get copies of the death certificate, keep in mind that these official documents come with a per-copy cost, and that cost varies by state and even the county you live in.
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Notify credit card companies of the death
All credit card accounts should be closed immediately after the primary cardholder dies, and you should act quickly to avoid interest and finance charges. For joint credit cards, you should notify the credit card company that a joint cardholder has died. Also find out if any recurring charges are set up on each credit card account. If there are recurring charges such as a phone bill or utility bill automatically charged to the account each month, you'll need to cancel those right away.
When you contact each credit card company, do so by certified mail and save your receipt. Once each card issuer receives your letter, they'll ask for an official copy of the death certificate if you didn't send one in your initial letter.
Contact the three credit bureaus
In addition to all credit card companies the deceased had an account with, you'll also need to contact all three credit reporting agencies -- Experian, Equifax, and TransUnion.
Request that the credit report is immediately flagged as "Deceased. Do Not Issue Credit." Flagging the credit report as "deceased" prevents criminals from opening up new credit cards or other accounts using the name and Social Security number of the deceased.
The phone numbers for the credit bureaus are:
- Experian (888-397-3742)
- Equifax (800-685-1111)
- TransUnion (800-888-4213)
Distribute payments to creditors
While the deceased's credit card balances should be paid from the estate, keep in mind that credit card companies are typically last on the list behind other debts such as mortgage loans. Depending on state law, you may also need to wait a specified period for bills to come in, and post a public notice of death in a newspaper before you start distributing money.
Don't let individual creditors try to jump ahead in line and get paid first -- especially if there is not enough money to go around.
Before you pay anything, you should also ask the credit card company to submit a proof of claim for the estate, according to John Caleb Tabler of Lau & Associates in Pennsylvania. You can include this request with your written notification to the credit card company, or you can submit it later.
Some debt collectors are very aggressive, and they may try to prey on the survivor's emotions to try to get them to pay a debt that may not be owed. Make sure you never admit or agree to anything on the phone, and especially a payment plan.
If you need help determining the order of debts to be paid in your state or you need general legal advice while overseeing the final wishes of the deceased, you may want to seek out an estate attorney.
Torontonians taking on debt at fastest rate in Canada.
It’s probably not a surprise that Torontonians have a lot of mortgage debt, given the price of housing in the city. But residents are also racking up nonmortgage debt — including auto loans, credit card debt and home equity lines of credit — at a rate faster than in any other Canadian city. Credit agency TransUnion said in a report Wednesday that the amount of nonmortgage debt held by Toronto consumers rose to $30,696 as of mid-year — a 5.49 per cent annual jump. Hamilton’s annual nonmortgage debt growth rate came in second among 11 leading urban centres at 4.20 per cent, rising to $27,212 in the second quarter.
What happens to credit card debt after death
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