What Happens to Our Debt When We Die?

[mickeyd]

Boomers with tons of debt (no one who visits here though) may end up wrecking our economy, or at least not helping it, in the next 20-30 years. Interesting article on why LBYM still is the best sleep tonic.

The ugly truth is that more and more Americans are incurring debt with no plans on paying it back before they pass away. Ultimately this debt- for mortgages, medical expenses and even student loans- will cut into retirement plans. And with the proposal to raise the retirement age to 69, that will give individuals even more time to rack up credit card bills.

CESI’s survey found that when Americans retire: 35% owe money to credit cards, 30% to their mortgage, 19% to car loans, 4% to student loans, and 11% to other. Seventy five percent said they went into debt once they were retired due to medical and funeral expenses.

The survey found 51% of those planning to retire soon are considering delaying retirement until the economy improves while only 57% believe they will be debt free before retirement.

“Most people are too scared to talk about their financial problems especially in their ‘golden years,’” said Neil Ellington, Executive Vice President of CESI, in a statement. “Retirement is supposed to be all about enjoying the time you’ve been saving up for and the reality is many people couldn’t save enough. The golden years can’t be golden if you’re sinking in a sea of red ink.”

What Happens to Our Debt When We Die? - Financial Planning

 

[haha]

Boomers with tons of debt (no one who visits here though) may end up wrecking our economy, or at least not helping it, in the next 20-30 years. Interesting article on why LBYM still is the best sleep tonic.
What Happens to Our Debt When We Die? - Financial Planning

I posted this once before- I have a brother who died about $100K in the hole, in spite of having a good public pension and essentially free medical care. He was secretive, but it appears that he knew he was dying for several years, and did his best to eat drink and be merry as he knew his tomorrow was coming right up. His CC bills were mostly bar and restaurant tabs.

Ha

 

[Nords]

In other news, dozens of credit card companies are lending unsecured funds to people who will die before they repay their debts-- but the companies are expecting to make it up on the volume.

Yet somehow we're the dumb ones?

 

[mickeyd]

I have a brother who died

I'm sorry for your loss ha.

 

[HFWR]

Boomers with tons of debt (no one who visits here though) may end up wrecking our economy, or at least not helping it, in the next 20-30 years. Interesting article on why LBYM still is the best sleep tonic.

What Happens to Our Debt When We Die? - Financial Planning

Student loans?

In other news, dozens of credit card companies are lending unsecured funds to people who will die before they repay their debts-- but the companies are expecting to make it up on the volume.

Yet somehow we're the dumb ones?

Yet somehow the CC companies make money, even when I collect cash back and airline miles, and pay no interest.

 

[Danmar]

CC's would be paid out of any estate assets, right? I guess if you die with no other assets the lenders lose. Wouldn't be that common I would think. My sister died a few years ago. She had cc life insurance that paid the balance at death. She knew she was dying for 4 months or so and made sure the card was at it's limit when she passed away.

 

[Dimsumkid]

CC's would be paid out of any estate assets, right? I guess if you die with no other assets the lenders lose. Wouldn't be that common I would think. My sister died a few years ago. She had cc life insurance that paid the balance at death. She knew she was dying for 4 months or so and made sure the card was at it's limit when she passed away.

Just finished an estate for my brother this year. If there's still assets in the estate, the CC's will come after the estate if the amount is high enough (one tried for $130), one CC said < $100 and they wouldn't bother trying to collect. There's a 6 month window you have to file for any claims against the estate. The worst ones are medical related bills, 3 years later and they still were trying to get us to pay the outstanding claims that were already paid by insurance. My guess is they're trying to guilt us into paying it off to stop the invoicing and hoping to collect twice.

 

[easysurfer]

CC's would be paid out of any estate assets, right? I guess if you die with no other assets the lenders lose. Wouldn't be that common I would think. My sister died a few years ago. She had cc life insurance that paid the balance at death. She knew she was dying for 4 months or so and made sure the card was at it's limit when she passed away.

Hmmmm....new "retirement exit strategy" . That is, to rack up a bunch of CC bills and debt before passing away.

 

[Nords]

CC's would be paid out of any estate assets, right?

Hmmmm....new "retirement exit strategy" . That is, to rack up a bunch of CC bills and debt before passing away.

I'm a little confused about the legal basis for a credit-card company trying to collect on an unsecured debt, even from the estate. Intimidation & harassment, sure. Legality? Not so sure.

 

[Gone4Good]

I'm a little confused about the legal basis for a credit-card company trying to collect on an unsecured debt, even from the estate. Intimidation & harassment, sure. Legality? Not so sure.

An unsecured debt has legal claim to be repaid, it is simply junior to secured debt with respect to the asset securing it. If you're alive and not paying, the unsecured creditor can file suit to compel payment, or bankruptcy. If you're dead, then the creditor files a claim through the probate process. Either way, it is a legal claim.

 

[Nords]

An unsecured debt has legal claim to be repaid, it is simply junior to secured debt with respect to the asset securing it. If you're alive and not paying, the unsecured creditor can file suit to compel payment, or bankruptcy. If you're dead, then the creditor files a claim through the probate process. Either way, it is a legal claim.

Thanks. I thought "unsecured" meant "If I die first then you lose"...

 

[JohnDoe]

An unsecured debt has legal claim to be repaid, it is simply junior to secured debt with respect to the asset securing it. If you're alive and not paying, the unsecured creditor can file suit to compel payment, or bankruptcy. If you're dead, then the creditor files a claim through the probate process. Either way, it is a legal claim.

Your mileage may vary by state.

http://getmoneysmart.com/articles/view/unsecured-debt-when-you-die

If, however, the credit card accounts have only your name on them, and you don’t live in a community property state, and there are no other names on the applications, the credit card issuer will have to stop there and write off the rest of your debt.

 

[Gone4Good]

Your mileage may vary by state.

Get Money Smart: Unsecured Debt When You Die - Can they come after my family?

If, however, the credit card accounts have only your name on them, and you don’t live in a community property state, and there are no other names on the applications, the credit card issuer will have to stop there and write off the rest of your debt.

Agreed. Things (as always) get complicated (especially when married). And every state has different rules. But the above article is about whether unsecured creditors can come after family members for debt collection once all of the estate assets have been sold. The answer to that is no, of course. It doesn't say unsecured creditors have no legal claim and don't get paid even if the deceased has assets to pay. Here's a more complete version of the quote you listed above . . .

If every asset you owned has been sold to pay your debts and there are still more debts, the collectors may turn avaricious eyes toward your surviving spouse, if you have one. Were your credit cards jointly held? Did your spouse put his/her name on the application? If so, she/he will be held liable for your outstanding credit card debts. If, however, the credit card accounts have only your name on them, and you don’t live in a community property state, and there are no other names on the applications, the credit card issuer will have to stop there and write off the rest of your debt.

Of course there are assets which can automatically pass to a surviving spouse. If the deceased has credit card debt and all of the assets pass to the spouse, then the credit card companies walk away holding Herman because there are no assets in the estate. But that is quite different from saying they have no legal claim to be repaid.

 

[mickeyd]

Hmmmm....new "retirement exit strategy" . That is, to rack up a bunch of CC bills and debt before passing away.

I have always been under the understanding that CC debt is basically an unsecured loan. If not paid at death, the loaner (?) must eat the thing as a loss. This is the cost of business as far as CCs are concerned. Estate is not required to repay Cc balance. It's kind of an academic issue, for sure, as many of us do not carry a balance anyway.

Am I wrong I in my assessment of how CC debit is in relation to an estate?

 

[Gill]

Am I wrong I in my assessment of how CC debit is in relation to an estate?

Yes. Your estate is legally obligated to pay all your debts. However, funeral and administrative expenses are usually given priority. Next come secured creditors followed by unsecured creditors. They all are entitled to payment, but there may be nothing left for the unsecured creditors which would include credit card debt.
Bruce

 

[Gone4Good]

Yes. Your estate is legally obligated to pay all your debts. However, funeral and administrative expenses are usually given priority. Next come secured creditors followed by unsecured creditors. They all are entitled to payment, but there may be nothing left for the unsecured creditors which would include credit card debt.
Bruce

What he said.

Most corporate bonds are "unsecured" obligations. When a corporation dies, it still has to pay the claim on its bonds from whatever assets it owns (its estate). Security or lack of security or subordination only effects the priority of the claim, not whether it is legally enforceable. A person isn't treated much different.

 

[Emeritus]

What he said.

Most corporate bonds are "unsecured" obligations. When a corporation dies, it still has to pay the claim on its bonds from whatever assets it owns (its estate). Security or lack of security or subordination only effects the priority of the claim, not whether it is legally enforceable. A person isn't treated much different.

Except that some corporations come back to life from bankruptcy

 

[mickeyd]

Yes. Your estate is legally obligated to pay all your debts. However, funeral and administrative expenses are usually given priority. Next come secured creditors followed by unsecured creditors. They all are entitled to payment, but there may be nothing left for the unsecured creditors which would include credit card debt.
Bruce

Thanks for getting me straight on that MBMiner. Don't know where I got that crazy "don't have to pay" idea.

 

[sridhga]

But why does one need a credit card in retirement? I thought a credit card is a loan given by the bank to someone who is working so that he can get on with his monthly expenses and repay them presumably with the next paycheck. Essentially it is a bridge loan between paychecks. But aren't retired people supposed to be living on their life savings? They are not active earners to really repay this. Why do banks issue credit cards to retirees?

 

[RonBoyd]

Dying with debt: A dirty little retirement secret

Nearly 40% of retired Americans said they've accumulated credit-card debt in their twilight years — and aren't worried about paying it off in their lifetime, according to a survey released by CESI Debt Solutions.

"At the end of the day, some people of a certain age say, 'It's too late in the game for me to do anything about it. I can't win. So I'm just going to stop playing the game,'" said Neil Ellington, executive vice president at CESI.

40%?!?!?! Wow!

On the other hand, how did they pick this survey group?

More than half of those surveyed had saved less than $50,000 — and many of that group said they'd saved absolutely nothing — yet they retired anyway. Just 4% said they had delayed their retirement due to debt.

 

[Gone4Good]

But why does one need a credit card in retirement?

$500 cash back.

 

[Nords]

But why does one need a credit card in retirement? Why do banks issue credit cards to retirees?

Because we don't want to carry cash, we don't want to deal with the hassles of debit-card theft/fraud, and the banks make a lot of transaction fees off our use of the credit card.

 

[Rustic23]

We pay no fees on our credit card. We get cash back/reward for it's use. If all merchants would give me a break for using cash, check or debit card, without a hassle, I would not use the credit card.

On the flip side, many retirees get their money on a monthly basis, pension payouts, SS and periodic withdrawals from savings. I see no difference in this and getting a pay check on a regular basis, with regards to how one would us their credit card.

 

[mickeyd]

But why does one need a credit card in retirement? I thought a credit card is a loan given by the bank to someone who is working so that he can get on with his monthly expenses and repay them presumably with the next paycheck. Essentially it is a bridge loan between paychecks. But aren't retired people supposed to be living on their life savings? They are not active earners to really repay this. Why do banks issue credit cards to retirees?

Most retirees received their credit card prior to retiring and banks have no reason to cancel them just because the cardholder has changed employment status.

Many retirees use the card, not as a "credit" card, but as a "charge" card, and pay off monthly balances, collect cashback bonuses, delay paying for purchases from 30 to 60 days after the purchase with no regard to paycheck receipt. It may be a kind of magic.

 

[Rambler]

But why does one need a credit card in retirement? I thought a credit card is a loan given by the bank to someone who is working so that he can get on with his monthly expenses and repay them presumably with the next paycheck. Essentially it is a bridge loan between paychecks. But aren't retired people supposed to be living on their life savings? They are not active earners to really repay this. Why do banks issue credit cards to retirees?

Ever try to rent a car without a CC? I hear it doesn't work. Buy stuff online? Airline tickets? iTunes? Apps? A lot of cell phones use CCs for pmt...etc. Most of us here would be paying them off every month (I haven't paid a finance charge on a CC in nearly 20 years, still in my 20s, and for something that was major, necessary, and needed right away). So, they are used primarily for convenience (for the folks here) not for financing.

R