When a family member passes away, the last thing grieving relatives need are calls from lenders and collection agencies. There are a lot of federal and state laws forbidding abusive, unjust, or deceptive debt collection methods.
These laws safeguard borrowers while still living and relatives following a loved one passing away. This post provides answers to some commonly asked questions concerning managing a deceased person’s debts.
Who Is Responsible for Paying the Debt?
A lot of debt does not simply go away once the debt holder passes away. typically, a deceased person’s estate is liable for paying their debts. Once someone passes away, they are referred to as a “decedent.” Their “personal representative” allocates the decedent’s assets according to the conditions of a will or, when the decedent was without will, state “intestacy” laws. The personal representative may be named in a will or, without will, by the court system.
The personal representative is going to pay off debts prior to distributing any leftover property to heirs (individual that inherit because of descent) and beneficiaries (individuals that are hand chosen in a will for inheritance). When there is not enough funding in the estate for covering debts, the property could be liquidated (sold for cash) for making payments.
Remember that some property is thought of as “exempt,” which means that collection agencies are unable touch it. For the most part, life insurance policies and retirement savings fall into this classification. Additional exemptions vary by state. An estate planning attorney can help you establish the standing of your loved one’s property.
Are There Exceptions?
A deceased person’s estate is usually responsible for that person’s debts, though there are a couple of important exceptions.
Joint Account Holders
Two or more individuals can jointly hold financial institution accounts and credit lines. The account holders share responsibility. should one holder pass away, the other holder(s) are liable for any related debt. As a result, jointly kept credit card debt is one kind of debt that you are going to be liable for, should a co-holder die.
Remember, that there is a difference between account holders and authorized users. An authorized user can use the account but is not responsible for any debts. Conversely, an account holder is responsible for its debts.
When an individual borrows money, rents a condo, or takes on other financial duty, they might be required to have a cosigner. This offers added assurance that the primary signer’s responsibilities are going to be implemented. Should the primary signer fail to keep up with their duties (for instance, when they pass away), the cosigner is responsible for the unpaid debt.
Spouses in Community Property States
In a couple of states, property held by spouses is referred to as “community property.” Typically, meaning that each significant other, with certain exceptions, equally shares all property obtained throughout the marriage. The outcome is that any debt obtained throughout the marriage remains the responsibility of the living spouse.
Presently, there are 9 community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A family law attorney can assist you in sorting through your state’s marital property laws.
What About Student Loan Debt?
Federal student loans are totally cleared when the borrower passes away. The loan is cleared once a relative or the personal representative of the deceased individual’s estate presents a copy of the death certificate to the loan servicer.
Remember that this doesn’t apply to private student loans. Establishing the status of private student loans when the borrower passes away requires a closer look at the associated loan documentation.
Do I Have to Talk with Debt Collectors?
Absolutely not, you do not have to talk to debt collectors — even when the debt is yours. Nevertheless, this doesn’t stop collectors from using other legal ways of obtaining unpaid debt. For instance, a debt collection agency might file a lawsuit towards a deceased person’s estate.
Don’t forget, it is against the law for a debt collector to use abusive, unjust, or deceptive methods when attempting to collect a debt. Many of these restrictions are detailed in the federal Fair Debt Collection Practices Act (FDCPA). Additionally, debt collectors may not contact you at unusual hours (typically defined as prior to 8 a.m. or after 9 p.m.). They also can’t torment you by continually calling you.
What Should I Do if a Debt Collector gets a Hold of Me?
When contacted by a debt collector pursuing payment for a deceased family members debt, give them information to contact the estate’s personal representative. This individual is responsible for resolving the estate’s affairs, including paying any overdue debts.
If you are a personal representative, you are going to want to establish if the debt is legitimate. Identify the collector’s name, the company they work for, and their company’s contact information. Also determine the amount owed, the name of the underlying creditor, and the way the debt may be challenged or settled for less than the overdue amount.
It doesn’t matter who you are, never give out any personal information (for instance Social Security numbers, account numbers, or birth dates) to unknown debt collectors. A lot of scam artists get their information from obituaries and other public notices of someone’s passing. They then pose as collection agencies to get personal information from the deceased individual’s family members and use it for identity theft and/or other kinds of deception.
How Do I Stop Collection Agencies from Getting in Contact with Me Again?
You can stop collection agencies from contacting you by mailing them a letter. The CFPB (Consumer Financial Protection Bureau) provides example letters. You need to retain a copy of the letter, send your original letter through certified mail, and pay a “return receipt” fee as evidence that your letter was sent and received.
After the collector receives your letter, they might not contact you again subject on two exceptions. Foremost, they can contact you to let you know that there is going to be no further contact. Secondly, they might contact you to let you know that they intend to take action, such as filing a lawsuit. Keep a record of all communications with collection agencies.
Can Debt Collectors Disclose My Family Member’s Debt to Others?
Overall, it is illegal for collection agencies to make public someone’s debt. They may only contact disinterested 3rd parties to find out how to contact the individual responsible for the overdue debt.
Nevertheless, they may not reveal or talk about the debt with anyone other than you, your significant other, your guardian (should you be a minor), or your personal representative of the estate. Should you retain an attorney to manage a deceased individual’s estate, debt collectors are required to work through them.
More Information and Complaint Filing
There are two fundamental ways to report misconduct by collection agencies. First, you can file a report with the FTC, the agency responsible for the enforcement of federal consumer protection laws. In addition, a lot of states have consumer protection laws of their own. You can report transgressions of these laws to the Attorney General’s office in your state.
Get Legal Assistance Managing a Deceased Family Member’s Debt
Losing a loved one and managing their estate is already a challenging life experience. Managing a deceased family members debt only adds to this responsibility. Thankfully, most likely you are not responsible for your deceased family member’s debts. Discover what your responsibilities really are by getting a hold of an estate planning attorney near you today.
Thomas Hootman, J. D. (2022, June 6). Who is responsible for deceased relative’s debt? Findlaw. Retrieved October 26, 2022, from https://www.findlaw.com/estate/estate-administration/paying-the-debts-of-a-deceased-relative-who-is-responsible.html
There’s nothing better than the peace of mind you will have knowing you’ve protected your family at a time when they need it most. Let us help. Schedule a consultation or contact Ogborne Law, PLC of Arizona today.