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Mark Cappel
UpdatedFeb 2, 2010

If a credit card company charged-off the debt on my deceased husband's account, do I need to report that as taxable income?

If I was not an authorized user on my deceased husband's credit cards, and they wrote off the debt. Why, two years after his death, would I have to pay tax as if it was income? We filed jointly until he died. I do not file jointly this year. His debts are not on my credit reports either.

Your message is light on facts so I will need to make to make some assumptions and guesses about your circumstances. Notably missing for your message is your state of residence and the disposition of the debts during the probate process for your husband's estate.

Deceased spouse's debt

Some people assume a decedent's debt is forgiven or possibly written off by creditors. The law does not work that way, with the exception of federal student loans. However, spouses or other relatives are not responsible for the decedent's debt automatically, either. Many collection agents take advantage of a debtor's grief and ignorance of the law to imply the family must pay the decedent's debt, but that may not be the case.

When a person dies with a will, the will controls the financial affairs of the decedent's assets, which is called the "estate." A will distributes assets, not debts. However, before any assets can be distributed to the heirs, all known debts must be paid by the executor. Therefore, the executor will sell assets in the estate to pay for any debts that remain. Only after the debts are paid will the remaining assets be distributed among the beneficiaries of the will.

If a person dies without a will, this is known as "dying intestate" in lawyer-speak. In this situation, the court appoints an administrator to handle the distribution of the decedent's assets according to the laws of the state. As with dying with a will, assets are distributed after debts are paid.

Here is a key point: If the estate is insolvent the creditor has no legal right to collect the debt from family members, children, or friends. There is no feudal debt bondage that ensnares an entire family, at least not in the US. In most states, the creditor cannot collect from the spouse either. However, in community property states, the question becomes more complicated.

Deceased spouse's debt in community property states

Community property states include Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Generally speaking, in community property states, debt incurred by a spouse for the benefit of the family is considered a "community" debt, and therefore the spouse is responsible for repaying that debt.

However, no two community property states use exactly the same laws. As a consequence, if you live in a community property state and have a spousal debt issue, it is imperative that you consult with an attorney in your state so that you understand your rights and liabilities in your particular circumstances.

Here, you do not reveal if and how the credit card debt was handled by the estate. You mention the credit card debt was written off.

Charge Off

"Charge-off" is an accounting term used by creditors when they move a delinquent account from its accounts receivable books to its bad debt ledger. This usually occurs between 180 and 240 days from the date of your last payment. The fact that an account is charged-off does not mean the debt may not be collected later. The charge-off date also does not correspond to the statute of limitations on collecting a debt, or the date that an entry on a credit record must be removed. All three dates or deadlines are independent of each other and have different meanings.

Because an account is charged off does not mean the creditor lacks a legal right to collect the debt. To the contrary, the creditor may move the account to its own internal collections department, or sell the debt to a third-party collection agency.

Debt tax

Here, we can infer that the creditor forgave the debt. We can reach this conclusion because you mention the requirement to pay taxes regarding the debt. Under federal law, a financial entity is required to send a taxpayer a "Form 1099C Cancellation of Debt" whenever it forgives or cancels a loan balance greater than $600. This may create a tax liability for the account owner because the canceled debt is considered "income" for tax purposes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to the taxpayer's tax return.

I am unconvinced you are responsible for the tax liability here. You mentioned that you were not a joint account holder of your husband's credit cards. You mentioned that you filed your taxes jointly, but that has no legal bearing on your liability for his debts.

However, you did not mention your state of residence. If you reside in a community property state, you may have tax liability for the imputed income. I urge you to consult with the attorney who probated your husband's estate, and bring the 1099C and other documentation regarding the purported tax to your meeting. There may be other significant facts in your situation that are relevant to your receiving an accurate answer.

I hope this information helps you Find. Learn & Save.



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AAlyssa, Mar, 2021

I just had the same occur. My husband past away January 2020, in California. I was/am not an authorized user of his credit account. I am assuming I will need to file jointly for 2020, since I was married part of the year. I received a 1099-C advising of a charged-off debt. Will I conceivably be responsible for the reported income?

JJosh, Aug, 2021

Hello Alyssa. 

Thank you for reaching out to us today. Please, do not take my answer to be tax advice as I am not an authorized Tax Consultant. Only Tax Consultants can provide tax advice. 

Your assumption is correct. According, to the California tax rule, you are responsible for the debts of your husband. You may want to fill out the 982 in your tax return. 

If you have any questions, we encourage you to speak to a tax professional to obtain precise answers to your questions. 

Regards, Josh 

MMark, Feb, 2011
Following up on this question, suppose the deceased individual was unmarried, and had outstanding credit card debt at the time of death (approx. $8,000). According to FL law (he died in FL), if the bank did not file a claim within the designated time after being notified during the estate, the estate is not responsible for the outstanding balance. As that is what happened in my case, the estate closed, and the bank was notified that the debt should be cancelled. I filed an 1041 for the estate (my father's estate, fyi). Several months later, the bank sent a 1099C to the estate, noting that the debt was cancelled and reported the amount ($8,000) in Box 2. The fed id number on the 1099C was my father's SS number,not the estate TIN. Do I have to file an amended estate return or final personal tax return for the taxpayer?
BBill, Feb, 2011
Please consult with a Florida attorney who has probate experience.