When a loved one passes away, dealing with their financial affairs can be exhausting without help. One common concern is the fate of credit card debt left behind. Many individuals wonder, “What happens to credit card debt when you die with no estate?”
Let’s explore how North Carolina estate administration and probate law handles credit card debt after death in North Carolina. We will look at various scenarios, including what happens when someone dies without an estate (without assets enough to cover their debts).
Credit Card Debt and Estate Law in North Carolina
When a person passes away in North Carolina, their debts, including credit card balances, become a matter of concern for the deceased person’s estate. The estate comprises everything the deceased owned at the time of death that isn’t exempt, including property, cash, and investments.
Debts are typically settled through a process known as estate administration or probate. This process takes place in court and includes settling all forms of debt, not just credit card obligations.
The clerk of the superior court in each county, acting as ex officio judge of probate, has jurisdiction over the administration, settlement, and distribution of estates of decedents. This includes estate proceedings such as:
- Probate of wills: The clerk declares a will as being authentic
- Appointment of a personal representative: This is the executor if the deceased person left a last will or a court-appointed administrator if there is no last will.
- Paying Debts, including credit card bills
- Distributing assets to heirs if there is anything left: As specified in the last will, the assets left go to the heirs named. If there is no will, the personal representative distributes assets under NC intestate laws.
In North Carolina, the personal representative of the estate has the responsibility to resolve any outstanding debts using the estate’s assets.
This process is part of what’s known as probate, the legal procedure through which the state manages and distributes an estate.
Probate Process and Credit Card Debt in North Carolina
The probate process in North Carolina involves the personal representative managing the decedent’s estate and identifying and valuing the estate’s assets and liabilities, including credit card debt. The estate pays the decedent’s credit card debt using available assets. However, these debts usually fall under unsecured debt, typically paid after higher-priority debts.
Next, let’s look at the order in which debts are paid. Personal representatives must adhere to state legal guidelines during debt settlement.
How the Estate Pays Debt
If the deceased’s estate includes sufficient assets, the personal representative pays off debts in a specific order as mandated by North Carolina law. After the personal representative settles all valid debts, heirs and beneficiaries receive their share.
Priority is usually given to secured debts, followed by other obligations, including unsecured debts like credit card balances.
However, if the estate lacks enough assets to cover all debts, it is considered insolvent. In such cases, state law determines the order in which debts are paid, and some creditors may not receive full reimbursement.
North Carolina Order of Debt Repayment
In North Carolina, during estate administration and probate, the estate must pay debts as specified in the North Carolina General Statutes – Chapter 28A, Pages 56 and 57 in the following order:
- Costs and expenses of estate administration
- Spousal Year’s Allowance: The surviving spouse and certain children can apply for a spousal allowance from the deceased person’s estate
- Funeral expenses up to $3500
- Burial place expenses up to $1500
- Money owed to the federal government
- Money owed to the State of NC or local governments within it
- Judgments docketed against the deceased person
- Claims from the Department of Health and Human Services
- Wages due to any employee employed by the decedent along with reasonable and necessary medical and hospital expenses for the decedent’s last illness
- A claim for equitable distribution
- All other claims, which is where most credit cards fall along with the remaining funeral expenses and burial place costs which exceed the amounts stated above.
This detailed classification ensures that all claims against the estate are addressed in a legally mandated sequence, ensuring fairness and compliance with state law.
Exceptions: When Family Members Do and Don’t Owe Credit Card Companies
It’s important to note that in North Carolina, heirs or family members are generally not responsible for the deceased’s debts. They are not personally liable for the decedent’s credit card debts unless they co-signed or are joint account holders.
Family Members and Credit Card Account Debt
“Your beneficiaries [heirs] are only responsible for any outstanding debts they shared with you. For instance, if they were a cosigner on a loan you took out or a co-borrower on a mortgage, they’ll need to repay the debt in the event of your death. If not, your estate is responsible for covering your remaining debts.” (“)
There are exceptions, however, such as if a surviving family member:
- Co-signed a loan with a credit card company or other type of loan such as student loans if they are not discharged upon death
- Co-signed a joint car loan or a loan on which they were a guarantor
- Was a joint account holder for a credit card debt. Credit card companies see the family member as the owner of the account once the other account holder passes away. (An “authorized user” is not the same and does NOT owe anything to the credit card companies.)
In these situations, the responsibility for the debt may be transferred to the co-signer or joint account holder.
Handling Financial Affairs After a Death
Dealing with credit card debts can be particularly challenging. It’s important to know that credit card companies need to be notified promptly after a person’s passing. This process involves providing a death certificate to the credit card issuer and possibly the three credit bureaus to prevent identity theft and deceptive practices. Putting a credit freeze on the deceased’s account can help prevent fraudulent purchases and identity theft.
Banks and other entities will also want a copy of the death certificate. As the surviving spouse, ensure you obtain several copies. If you don’t take care of these matters, companies will continue sending you cards and letters in your deceased spouse’s name for many years.
When credit card companies or banks receive the death certificate, a joint account holder becomes the sole account holder. Credit card companies will often close your account briefly if you are not the primary cardholder. They then do a credit check on you and reissue the card if you qualify.
If the deceased person was the sole and primary account holder, the responsibility to settle the debt falls on the estate. You will not need to pay the debt no matter how often debt collection companies call you or send you letters. However, in North Carolina, we have a doctrine called the doctrine of necessaries which makes surviving spouses personally responsible for certain debts, such as medical bills and nursing home costs. Certain charges on a credit card might fall under this doctrine, leaving the surviving spouse with arguably some personal responsibility.
Understanding these nuances of North Carolina’s estate law is crucial for anyone managing a deceased loved one’s financial affairs. It ensures that the estate is handled correctly and provides clarity on the obligations and protections for family members regarding the deceased’s debts.
The probate process can be complex, especially with outstanding debts, so professional legal advice is crucial to ensure proper compliance with state laws and regulations. Properly managing credit card debt is essential in the probate process, with executors and administrators playing a key role in ensuring lawful and fair administration of the estate.
An Experienced Estate Administration and Probate Attorney Can Help
At Hopler, Wilms, and Hanna, we understand the complexities and challenges you face when a loved one passes away. Whether you are grappling with the immediate concerns following a death, such as notifying credit card companies and managing outstanding debts or planning for the future of your family during an illness, our team is here to provide guidance and support. Our knowledgeable estate administration attorneys bring a wealth of experience in dealing with various aspects of estate and probate law.
Our attorneys can guide you through the probate process, ensuring that all financial obligations, including credit card debts, are handled legally and ethically. We understand the nuances of dealing with credit card companies, debt collectors, and credit bureaus. Our team can advise on how to freeze the deceased’s credit report to protect against identity thieves and manage any recurring charges that may arise.
In cases where joint accounts or credit cards are involved, we can help determine who is legally responsible for the remaining debts. We also provide counsel on how to handle other assets like bank accounts and retirement accounts, ensuring that the remaining assets are distributed according to the deceased’s wishes or state law.
Understanding your rights and obligations, especially in complex financial situations like a death in the family, is crucial. Our attorneys can help navigate these situations, providing clarity on issues like the role of the estate executor and how to manage final expenses.
At Hopler, Wilms, and Hanna, we are committed to helping you make informed financial decisions during the probate process. We aim to ease the burden during these challenging times by offering experienced legal advice tailored to your unique situation. Let us help you manage the probate process and estate administration with confidence and peace of mind.