US: Credit Market

Are You Responsible for Your Late Parent's Debts?

Erica Sandberg,

Dear Opening Credits,
I was on the phone just now with my father's credit card company. I was asking about the "credit protection" that all credit cards seem to have these days. Customer service stated if I remove this from his account and he gets sick or dies, I would be responsible for his bill. (They stated that all credit card debt is passed onto the children.) I am not on ANY of my father's accounts, but I do believe I am the executor of his will. Will that make a difference? I am having a hard time believing that this is happening or even legal. Can you please let me know? -- Sherri 

Dear Sherri,
I, too, am aghast at the proposition that you'd be held responsible for your father's post-mortem credit card bills! Unlike in medieval times, liabilities are not passed down by bloodline until some relative finally scrapes up the cash. In fact, the very idea smacks of bonded labor (or debt bondage), where children may be forced to work off their parents' debts, an ancient practice that's been against international law since the United Nations banned it in 1956.

I'll give that customer service representative the benefit of the doubt, though, and assume the rep was confused about the law and not deliberately trying to mislead you.

Simply put, if neither you nor anyone else is a co-signer on your father's accounts, whatever balances he has are his alone. If Dad passes away while still owing money to the banks, the remaining sum will come out of his estate -- assets and property at death -- and be directed to his creditors. In the event there is no estate, the debt will depart with him. Your role as the will's executor may provide you with some power in determining the order of how his liabilities are paid, but it certainly won't make you personally accountable for imbursement.

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For confirmation of this, I asked Los Angeles attorney Christopher Missick, author of the consumer bankruptcy book "Begin Again," to comment on your situation. "Of course, it varies based upon what state you live in," says Missick, "but generally, there is no legal obligation to assume the debt of a deceased loved one, if in fact, you were never a party to that debt.  The only recourse the creditor may have is to seek payment from the estate. As the executor of the estate, there will be a responsibility to settle the debts of the estate and distribute the assets accordingly.  A violation of the fiduciary duty as executor may lead to other legal issues, but generally, she shouldn't worry about inheriting credit debt."

Therefore, you had difficulty believing that you'd be held responsible for your parent's debt because the very prospect makes no sense. It's nice to know your gut reaction is correct, isn't it? 

And now for the credit protection issue. These insurance products protect cardholders against financial and credit report damage caused by unemployment, illness and even death. If your dad experiences an inability to pay that meets the policy's specific criteria, his monthly payments and interest charges would be suspended for a set time period. As you noted, most credit card companies offer these plans to their customers. The reason they are heavily promoted is because they are a good source of revenue for credit issuers. Cardholders are not required to purchase them, however, and are free to drop them at will.

Now, the idea behind credit protection plans is fine, but you are also right to question their real-life merits. For more than a decade, I have spoken to people in debt. I have rarely come across a case where credit protection worked to a distressed borrower's advantage. For the monthly fee one pays, there are usually too many restrictions to make them worth the cost.

You didn't mention why you are involved with your father's financial affairs at this moment, but if you are beginning to assume control because he cannot manage them himself, I urge both of you to seek legal counsel before you get too deeply involved. Setting clear boundaries and expectations is always helpful in these situations.

I hope by this point you've stopped worrying, Sherri. The next time you speak with a credit card company employee who is telling you something you know to be incorrect, be sure to politely vocalize your understanding of your rights and responsibilities. And if the mood strikes, go ahead and share the history of bonded labor and debt repayment law, too. It's fascinating stuff.