WHAT HAPPENS TO CREDIT CARD DEBT WHEN YOU DIE? A WIDOW’S HUGE VICTORY

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What Happens to Credit Card Debt When You Die? Introduction

What happens to credit card debt when you die? Credit card debt can’t follow you to the grave but it does live on. It is paid off from estate assets. But if there are no or insufficient assets in the Estate, what then? The traditional thinking and what the bank’s documents say is, that it becomes the responsibility of a joint account holder. That is certainly the advice we gave in our 2019 Brandon’s Blog titled: CREDIT CARD DEBT AFTER DEATH IN CANADA: WHO IS RESPONSIBLE?

Remember that classic hit “I Fought the Law” with the epic line, “I fought the law and the law won”? This tune, penned by Sonny Curtis of the Crickets, got a killer cover by the Bobby Fuller Four, hitting the top ten charts back in 1966. Their rendition even snagged a spot at No. 175 on Rolling Stone’s list of The 500 Greatest Songs of All Time in 2004. And to top it off, the Rock and Roll Hall of Fame dubbed it one of the 500 “Songs that Shaped Rock” that same year. Talk about a rock ‘n’ roll anthem! This Brandon’s Blog is about a widow who fought the law and the widow won!

In a recent legal case at the Supreme Court of British Columbia, the Royal Bank of Canada faced off against Carol Smith (no relation to us) in a debt dispute over a Royal Bank Visa credit card balance. The case delves into intricate details, including the primary issue of Mrs. Smith’s liability for the debt accumulated on the credit card. Let’s dissect the facts, arguments, and final judgment in this high-stakes legal showdown.

What Happens to Credit Card Debt When You Die? Credit Card Debt and Death

How Credit Card Debt Is Handled After Death

Two weeks ago, I wrote the Brandon’s Blog: HOW TO PAY OFF CREDIT CARD: CANADIANS NAVIGATING TO HUGE CREDIT CARD DEBT CRISIS. That blog dealt with issues facing credit card holders when they are alive and their unpaid debt, not about a deceased person.

When someone passes away with outstanding credit card debt, the responsibility for repayment typically falls to the deceased’s estate. The Estate Trustee is responsible for notifying creditors of the death, as well as determining the total amount of debt owed and using the assets of the estate to settle the debts.

If the deceased’s estate is unable to cover the full amount of debt, or even before the bank makes that determination, it will make a demand on any joint account holder or supplementary credit card holder. Individuals need to plan and consider the impact of their credit card debt on their estate to ensure a smooth and orderly resolution of their financial affairs after their passing.

Impact of Credit Card Debt on the Estate

Credit card debt can have a substantial effect on an individual’s estate. Creditors possess the legal entitlement to assert claims against the estate to have their outstanding debts paid from its assets. The Estate Trustee is required to adhere to a specific protocol ensuring all estate debts are properly identified, resulting in a delay before beneficiaries can anticipate receiving their allocated shares from the estate. Settlement of estate debts consequently diminishes the total amount distributed to each beneficiary.

If estate debts exceed the value of the estate, the Estate Trustee is well advised to put the estate into bankruptcy and allow whatever assets there are to pay for the bankruptcy process. This will protect the Estate Trustee given his or her liability taken on by being the Estate Trustee. It will also allow the estate assets to be administered according to the law by a licensed insolvency trustee to treat all creditors fairly.

What Happens to Credit Card Debt When You Die? Dealing with Credit Card Debt After Death

Checking for Life Insurance Coverage

The appointed Estate Trustee is advised to promptly inform creditors of the deceased person’s passing and explore any potential insurance coverage that may apply. It is recommended to engage the services of a financial advisor or legal expert to effectively navigate the intricacies involved in settling credit card debt post-mortem. By conducting a comprehensive review of insurance policies and seeking professional assistance, individuals can adeptly handle and resolve any outstanding debt obligations left by the deceased individual.

It is important to first check if the deceased had any insurance coverage that may help cover outstanding debts. This includes checking for credit card balance insurance, mortgage insurance, or any other relevant life insurance policy that may provide coverage. It is advisable to contact the relevant credit card companies, the bank that holds the mortgage and any insurance providers to whom the deceased’s records show payments were made.

Selling Assets to Pay Off Debt

The obvious option in dealing with the debts of the estate when there are sufficient assets, is selling enough of them to pay off the debt. This process involves identifying any valuable assets left behind by the deceased, such as real estate, vehicles, or investments, and liquidating them to generate funds to settle the outstanding debts.

It is essential to collaborate closely with qualified professionals to ensure the legal and ethical execution of this process. By liquidating assets to settle credit card debt and other secured debt or unsecured debt posthumously, one can effectively manage the financial matters of the deceased and facilitate the distribution of remaining assets per the decedent’s directives.

Things become more involved if the deceased wishes specific assets to go to certain beneficiaries, rather than just the cash generated from the sale of all the assets.

The above information is standard for any Estate Trustee to follow, including when we act as an Estate Trustee. But what is the credit card issuer’s position if there is a joint credit card holder? That is what the case of Royal Bank of Canada v. Smith, 2024 BCSC 963 from the Supreme Court of British Columbia is all about.

What Happens to Credit Card Debt When You Die? Introduction to the Case

Let’s dive into the intriguing case between the Royal Bank of Canada (RBC) and a widow, Carol Smith. This legal battle has caught my attention not so much due to the complexities surrounding the debt dispute, but because of the parties involved. Let me walk you through the overview, disputes, and RBC’s application for summary judgment in this case.

Parties Involved

Firstly, we have RBC, the largest financial institution in Canada with a wide reach and unlimited resources. On the other side, we have the widow Carol Smith, the defendant in this case. The contrast between a gargantuan bank and an individual defendant adds an interesting dynamic to this legal conflict.

Debt Dispute and Amount

The crux of the matter lies in a debt dispute over a substantial amount. RBC claimed that Carol Smith owes a total of $51,764.09, including the principal amount and accrued interest on a credit card debt. This significant sum raises questions about the circumstances leading to this debt and the responsibilities of the parties involved.

The bank said the defendant applied for the credit card on February 14, 2001. The deceased Mr. Smith incurred the vast majority of charges on the credit card, and Mrs. Smith made her first charge on June 1, 2015. Over time, the credit limit on the credit card increased, and as of August 25, 2016, the credit limit was $24,000.

The Smiths paid off their monthly credit card balance in full for the first few years, but in late 2016 the balance slowly began to rise. By late 2017 the balance was over the credit limit, and in January 2018 the credit limit was increased to $28,000. Page 7 The last new charges on the card were made in May 2018, and the last automatic payment was made on October 19, 2018.

Purpose of Plaintiff’s Application

The RBC as plaintiff filed for summary judgment under Rule 9-7 of the Supreme Court Civil Rules. This application seeks a swift resolution to the dispute, considering the substantial sum at stake and the nature of the issues involved.

Carol Smith acknowledged the suitability of a summary trial, paving the way for a focused legal process to determine the outcome. Her position was that she rarely used her RBC Visa Credit Card, but when she did, she believed she was an authorized user on her husband’s credit card and he was solely responsible for all balances.

Obviously, like every other court case, it comes down to the evidence.

What Happens to Credit Card Debt When You Die? Facts and Evidence Presented

As I delve into the details presented before the court, which involved the Royal Bank of Canada and the defendant, Carol Smith, a clear picture emerges regarding the credit card dispute at hand. The key elements of the case are:

1. Details of the primary cardholder and the credit card application: The primary cardholder of the credit card in question was Mrs. Smith’s late husband, Alfred Smith. Upon his passing, the focus shifted to determining Mrs. Smith’s liability for the debt accumulated on the card.
2. Analysis of the Cardholder Agreement terms and obligations: A meticulous review of the Cardholder’s Agreement terms revealed the responsibilities associated with being a co-applicant or an authorized user. The bank relied upon what it stated were the standard definitions and clauses within the credit card agreement.
3. Examination of the evidence presented by both parties: The court meticulously examined the evidence put forth by both the plaintiff and the defendant. This included witness testimonies, documentation, and arguments presented to ascertain the facts surrounding the case.

From the application process to the complexities of the Cardholder’s Agreement, each element was meticulously scrutinized to determine the liability of the defendant in the outstanding debt matter. Evaluating evidence and legal arguments provided a comprehensive view of the case, offering insights into the intricacies of credit card disputes and contractual obligations.

What Happens to Credit Card Debt When You Die? Legal Analysis and Arguments

The courtroom environment, characterized by its atmosphere of anticipation and adherence to procedural rules, provides a structured platform for a thorough analysis and scrutiny of the pertinent facts in question.

Evaluation of Mrs. Smith’s Liability and Contractual Obligations

The crux of the matter lies in determining whether Mrs. Smith, as the widow of the primary cardholder, is indeed liable for the substantial debt accumulated on the credit card. The legal framework, as outlined in the Cardholder’s Agreement, forms the basis for defining the extent of her obligations.

The Bank contended that Mrs. Smith, by accepting and using the credit card, implicitly agreed to be bound by the terms and conditions outlined in the Cardholder’s Agreement. However, Mrs. Smith vehemently denies ever applying for the credit card or consenting to its terms, raising crucial questions regarding the validity of her liability.

Comparison with Similar Cases and Legal Precedents

In legal matters as complex as this, precedent plays a significant role in shaping the outcome. Drawing parallels with previous cases, such as Royal Bank of Canada v. Klassen, 2013 BCSC 631 (CanLII), sheds light on the importance of clarity in determining co-applicant status and consent to credit limit increases.

Through a comparative analysis of these cases, it becomes evident that the burden lies on the bank to substantiate Mrs. Smith’s status as a co-applicant and prove explicit consent to credit limit enhancements. Failure to meet this burden could sway the decision in favour of the defendant.

Interpretation of the Cardholder’s Agreement and Consent to Credit Limit Increases

The interpretation of the Cardholder’s Agreement, particularly concerning credit limits and consent to increases, emerges as a focal point in the legal discourse. The agreement’s language regarding express consent to credit limit enhancements becomes a pivotal factor in determining liability.

As I navigate through the nuances of contractual interpretation, the obligation to review monthly statements and identify errors within a specified timeframe adds a layer of complexity to the case. Mrs. Smith’s adamant denial of ever applying for the credit card underscores the need for concrete evidence to establish her contractual obligations.

In the intricate web of legal analysis and arguments, every detail matters. The meticulous examination of Mrs. Smith’s liability, comparison with legal precedents, and interpretation of the Cardholder’s Agreement paint a vivid picture of the intricate tapestry of the legal system.

What Happens to Credit Card Debt When You Die? Comparison with Previous Cases

As I delve into the details of the current case at hand, I can’t help but draw parallels to a significant legal precedent – the Royal Bank of Canada v. Klassen case. This previous case holds valuable insights and implications that can greatly impact the current judgment.

RBC claimed that its normal practice in the credit card application process was to send a copy of the Cardholder’s Agreement to the cardholders together with the credit cards. RBC further stated that Mrs. Smith breached her agreement with it and that Mr. and Mrs. Smith are jointly and severally liable for the amount owing.

Mrs. Smith denies being a co-applicant and submits that she never expressly consented to any increases to the credit limit. Mrs. Smith denies ever applying for a Bank credit card and further denies ever agreeing to the terms of the Cardholder’s Agreement. If she were a co-applicant, Mrs. Smith or Mr. Smith would need to have given express consent to the credit limit increases.

Reference to the Royal Bank of Canada v. Klassen Case and Its Implications

Looking back at the Royal Bank of Canada v. Klassen case, it becomes evident that there are striking similarities in the issues raised. In that case, the Bank sought judgment against Mr. Klassen for a credit card issued to Ms. Faa. Mr. Klassen’s defence rested on the premise that he was only an additional user on Ms. Faa’s account, not a co-applicant.

The Court’s ruling in the Klassen case highlighted the importance of clear documentation and evidence. As Mr. Klassen denied signing the Co-Applicant Form, the Bank’s failure to produce this crucial document cast doubt on the entire case. The Court ultimately sided with Mr. Klassen due to the lack of concrete evidence supporting the Bank’s claims.

Analysis of the Similarities and Differences in the Two Cases

Now, shifting the focus to the current case, the Court grappled with similar contentious points. Just like in the Klassen case, the issue of co-applicant status and liability comes to the forefront. The bank’s assertions regarding Carol Smith’s involvement with the credit card and the associated liabilities raise key questions that need to be addressed.

One notable similarity between the two cases lies in the burden of proof placed on the bank. In both instances, RBC is tasked with substantiating the claims against the defendants. However, the nuances in each case, particularly regarding the application process and consent to terms, present distinct differences that warrant careful examination.

What Happens to Credit Card Debt When You Die? The Final Judgment

Reflecting on the case of Royal Bank of Canada v. Smith, it is essential to delve into the intricate details that led to the final judgment and conclusion, which holds immense significance for all parties involved.

Summary of the Court’s Decision and Reasoning

Having closely examined the evidence presented before the court, it became evident that RBC sought a substantial sum from Mrs. Smith, following the debt accumulated on a credit card. However, after a thorough analysis, it was concluded that the bank failed to produce the actual documentation to establish Mrs. Smith’s liability for the outstanding balance and accrued interest on the card. The court meticulously considered the Cardholder’s Agreement terms, the lack of concrete evidence, and the nuances of Mrs. Smith’s involvement in the credit card application.

Implications of the Judgment on the Parties Involved

The judgment in this case carries profound implications for both the Royal Bank of Canada and Mrs. Smith. It underscores the importance of clear documentation, individual liabilities, and the burden of proof in financial disputes. The Bank’s evidence was what the normal practice of the bank is and what the Cardholder’s Agreement says. However, there was one big problem. RBC was unable to provide a cogent explanation for the Bank’s failure to produce the actual application for Mrs. Smith’s credit card.

For the bank, it serves as a reminder of the necessity to adequately substantiate claims and prove liabilities. On the other hand, for Mrs. Smith, it signifies a just outcome that vindicates her in the face of financial allegations.

What Happens to Credit Card Debt When You Die FAQs

The answers below of course must be considered with the above case in mind.

1. What happens to credit card debt after death in Canada?

• The treatment of credit card debt upon death remains consistent in Canada. It is typically settled using funds from the deceased individual’s estate. In cases where a co-signer is present on the credit card account, they may assume responsibility for the full amount owed.

2. What happens to debt if someone dies with no estate?

• In the circumstance where an individual passes away with outstanding debts and lacks sufficient assets to settle them, typically, those debts will remain unpaid. An exception to this would be if the deceased had jointly signed for the debt with another party, in which case the co-signer would assume responsibility for repayment of the remaining balance.

3. Do not pay back a creditor if it’s not a requirement. Is this true for credit card debt after death?

• Creditors have the legal right to pursue the assets of the deceased individual’s estate to settle outstanding credit card debts post-mortem. It is important to note that the obligation to settle these debts generally does not extend to other family members unless they have specifically co-signed on the credit account in question.

4. Can credit card debt be transferred to another party after death?

• Credit card debt is not transferable to another party unless that party was a co-signer on the account or as part of a joint account. Following the passing of the account holder, the responsibility for settling the credit card debt lies with the deceased’s estate, which must address this obligation before distributing assets to beneficiaries.

  

What Happens to Credit Card Debt When You Die Conclusion

One of the pivotal takeaways from this case is the significance of contractual obligations and the need for explicit consent in financial agreements. More importantly, it shows the need to be able to produce the actual documents you are relying upon. It underscores the critical role of evidence and clarity in establishing liabilities. Additionally, it highlights the importance of due diligence in legal proceedings and the weight of proof in matters of debt and financial responsibility.

I hope you enjoyed this what happens to credit card debt when you die Brandon’s Blog. Do you or your company have too much debt? Are you or your company in need of financial restructuring? The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt.

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The information provided in this Brandon’s Blog is intended for educational purposes only. It is not intended to constitute legal, financial, or professional advice. Readers are encouraged to seek professional advice regarding their specific situations. The content of this Brandon’s Blog should not be relied upon as a substitute for professional guidance or consultation. The author, Ira Smith Trustee & Receiver Inc. as well as any contributors to this Brandon’s Blog, do not assume any liability for any loss or damage resulting from reliance on the information provided herein.