Dear Lifehacker, I'm getting on in life and at this point it seems unlikely that my credit card debts will ever be paid off in full. (I can barely afford the monthly interest repayments, let alone the outstanding debt.) I also don't own much in the way of assets. So my question is: What happens to my credit debt when I die? Do I need to worry about my adult son getting saddled with my debt? Thanks, Down And Downtrodden
Sorry to hear about your financial difficulties. The good news is that family members generally aren't responsible for paying off a deceased person's outstanding credit card debts. This is what's known as 'unsecured debt'.
Unlike mortgages and car loans, an unsecured debt is not tied to a physical asset, which makes it harder for creditors to recoup their money. With that said, there are still a few caveats and procedures to be mindful of.
When you die, a family member will need to notify any financial institutions you're a member of. (Most banks have dedicated bereavement/deceased estate services they can call.) They will need to fill out a form and provide a copy of your death certificate so that the death can be made official.
The bank will then assess your debts and assets before attempting to reconcile as much of the outstanding debt as possible. If there is not enough cash in the estate, the executor will sell property and use the money from the sale to pay the debts. However, this is only possible if there is property and other physical assets in your name.
Naturally, if your debt exceeds your available assets, any savings accounts in your name will be cleaned out rather than being passed on to the beneficiaries in your will. So it's a good idea to hand this cash over to family members before croaking. If you still have access to superannuation, any remaining funds may go to the banks instead of your family.
You also need to be mindful of joint bank accounts. If you own any joint credit cards, ownership will be transferred to the survivor's name - which means they will become solely responsible for managing and paying off the account. Hopefully your credit cards aren't co-registered in anyone else's name, as reverting to single ownership can be a difficult process: especially when you owe the bank money.
If there is not enough money in your estate after all assets are sold, the bank will usually write off the debt which means it ceases to exist. In Australia, a lender cannot force family members to pay your personal debts except in very specific circumstances. (For example, if they acted as guarantor for a loan in your name, if they are a joint borrower (see above) or if they have an asset which has been used as security for your loan.)
Alternatively, you might want to consider filing for bankruptcy. If your application is successful, you will no longer have to repay your unsecured debts. However, bankruptcy comes with its own potential drawbacks, including limits on overseas travel, compulsory repayments from any future income and having your name permanently appear on the National Personal Insolvency Index (NPII). You can find out more about the pros and cons of filing for bankruptcy here.
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