What Happens When a Family Member Debtor Dies?

I’ve previously discussed notifying creditors when a family member dies.  The result of a death in the debtor family is all accounts are reported as “deceased” on the deceased consumer’s credit reports. If there are joint and/or “authorized user” credit card accounts, these accounts are also reported as deceased on the surviving spouse’s credit reports.

Both consumers who qualified for the joint account are responsible for payment.  An authorized user is not responsible for payment, but can use the account. So, what happens if the surviving spouse wants to use the joint and/or authorized user accounts? It’s not as simple as just using the card…

Authorized User Accounts

If the surviving spouse is listed as the authorized user, they will probably have to apply for the card under their name using their own credit. The creditor will let them know if they can continue to use the account.  When they apply for individual credit, they should ask the creditor to consider the credit history of accounts reported in the deceased spouse’s name, as well as those reported in their name. The creditor must consider this information, if the surviving spouse can prove it reflects positively and accurately on their ability to manage credit. For example, they may be able to show through canceled checks that they made payments on an account, even though it is listed in the deceased spouse’s name only.  The creditor makes the decision whether to accept or reject the application. If rejected, they are given reasons for the denial.

Joint Accounts

Under the Equal Credit Opportunity Act (ECOA), a creditor cannot automatically close or change the terms of a joint account solely because of the death of a spouse. A creditor may ask them to update their application or reapply. This can happen if the account was originally based on all or part of the deceased spouse’s income and if the creditor has reason to believe their income alone cannot support the credit line.

After they submit a re-application, the creditor will determine whether to continue to extend them credit or change the credit limits. The creditor must respond in writing within 30 days of receiving the application. During that time, the surviving spouse can continue to use the account with no new restrictions. If their application is rejected, they must be given specific reasons, or told of their right to get this information.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Cards, Credit Report, Credit Score, Debt, Money & Identity

This post was written by John Ulzheimer