During COVID -19 many have lost their spouse, facing financial hardship with the credit lines opened by their deceased spouse. 

What happens to a spouse’s credit report when he or she is deceased?

In the event that you and your spouse have a joint bank account, the terms of the account will not change and the account will not be close by the creditor if your spouse passes away. It is recommended to pay any outstanding balance left of the joint credit line and apply for a new credit line solely under your name. The credit agencies periodically update their records with reports from the Social Security Administration. When the update is made by the credit reporting agencies, your spouse’s credit report will be flagged to show that he or she has passed away and his or her name will be removed from any pre-approved credit offer mailing lists.

Sending the credit bureaus the death certificate of your spouse will allow them to update the credit file which will prevent fraudulent activity using the deceased spouse’s identity. The credit history will remain under the credit file for seven years and the file will eventually be non-existent.

Who is responsible for the debts of a deceased spouse?

After passing away, your debts will be classified as secured and unsecured. Secured loans such as mortgages and auto loans are supported by collateral (assets that can be taken by the lender if they don’t get repaid). Most credit cards, student loans, and other loans do not have collateral making them unsecured.

Depending on the assets of your estate, your estate could entirely pay off your secured debts or make installment payments through a trust or other legal entity. Also, your property may be sold, refinanced, or turned over to the lender to take care of the debt.

Any unsecured debts that belong to you will likely need to be paid from your estate. If you die with $10,000 in your savings account and $5,000 in student loan debt, for example, the lender would usually be paid before the remaining $5,000 can be distributed to your heirs.

If there are multiple creditors with total claims greater than the amount held by your estate, the laws in your state will determine who gets paid and how much. Your unsecured debts will go unpaid if your estate lacks sufficient funds to cover them.

Which debt can be inherited?

  • Joint debts: The most common example of a joint debt is a mortgage. Car loans, credit cards, lines of credit, and almost any type of debt can be joint debts. If you took out a loan with your spouse, they’ll be responsible for paying it off if you die.
  • Cosigned debt: A cosigner agrees to pay your debt in the event you default on a loan. If you had someone cosign any of your loans, they’ll be responsible for the debt if you die. For example, if you had a credit card that only you used but your parent cosigned years ago when you were young, they’ll be required to cover it.
  • Home equity loan on an inherited house: A home equity loan can allow you to borrow money against the value of your home minus the amount of your outstanding mortgage. The home equity loan on an inherited house becomes an inherited debt upon your death.
  • Debt in community property states: There are nine community property states and Texas is one of them: Arizona.
  • Timeshares: If you purchased a timeshare and put the names of your heirs’ on the deed to make it more convenient for them to use the property upon your death, your children will inherit the timeshare and be forced to pay the annual maintenance fees that come with it.

Credit and Debt Issues May Arise

Keep in mind that by law any credit opened accounts during the marriage are automatically held jointly, meaning that you are still responsible for any debt that your deceased spouse incurred.

During this hard time, you may need to ask for assistance from a credit counselor to help you manage your debt and to create a budget that fits your new financial responsibilities.

Source: Experian