- Estate claims are not lawsuits. Credit card companies maintain software allowing them to scan probate records around the country. If their records indicate that a card holder who owed a balance to the company has recently passed away, the company will file a formal claim for the outstanding balance with the probate court. This differs from a lawsuit in which a credit card company must file a documented complaint with the court, send formal notification of the suit to the defendant and present its case in a court hearing.
- Although the deceased's credit card company will not sue his estate, it does have the right to sue his family members under certain circumstances. Joint account holders, for example, are just as responsible for the debt as the deceased. If the joint account holder on the credit card account refuses payment, the credit card company can pursue payment through a lawsuit rather than filing a claim against the deceased's estate. In community property states, credit card companies sometimes enjoy the right to pursue the deceased's spouse for payment -- even if the spouse was not a joint account holder. Community property laws regarding debt collection, however, vary greatly in each community property state.
- Each probate court distributes the deceased's assets according to specific state laws. If the estate is insolvent and thus lacks the funds to pay off all of the deceased individual's debts, the credit card company has little choice but to write off the debt as a tax loss.
Another situation in which the credit card company must write off the debt occurs if the company does not file a timely claim with the probate court. The amount of time a probate case remains open for claims varies by state, but if a credit card company is not aware of the card holder's death and does not request payment through probate, it does not get paid. Once the probate court closes the case it will not accept further claims from creditors. - Credit card companies that are faced with either an insolvent estate or do not file timely claims sometimes transfer the outstanding account balance to a collection agency that specializes in collecting debt from the deceased's family members. Although family members can pay off the account if they choose, they are not legally required to do so.
The Fair Debt Collection Practices Act notes that it is against federal collection law for any debt collector to threaten an individual with a lawsuit if it lacks the legal right to bring suit against her. Thus, when engaged in collected a deceased individual's credit card debt, debt collectors cannot threaten his family members with legal action should they refuse to pay off the account.