There are many conversations about how to live with debt, but what about dying with it? Many Texas residents have questions and misconceptions about when happens to their credit card debt after they pass away. With the average American holding $62,000 in debt, understanding where that debt goes at end of life is important for many.
When a person passes away in Texas, his or her assets are typically distributed following a legal process called probate. The probate process will determine an estate's value, taking into account both assets and debts. It will then use the assets to pay down the debt before distributing the balance to heirs. However, in some cases people have more debt than can be paid down by their assets. What happens then?
Credit card debt is not secured, so there is often no recourse for the credit card company to get its money back following probate. However, since Texas is a community property state, a person's spouse is responsible for any debt incurred during the marriage. The same is true for medical bills. Secured debt such as mortgages and car loans are slightly different, as the creditors in these cases have the option of repossessing the property.
When creating estate plans, considering credit card debt, mortgages and other debts is a good idea. It is best to disclose these outstanding obligations with executors so they know what to expect during the probate process. If debt gets too overwhelming, bankruptcy may be an option. Those looking to file for bankruptcy should work with a Texas lawyer to understand the current laws and standards.
Source: lifehacker.com, "What Happens to Your Debts When You Die", Alicia Adamczyk, May 4, 2018