Departed Debt—Who Pays?
By M. Kotch
Source: Flickr.com
The passing of a loved one involves more than just grief; mourning is often interrupted by funeral arrangements to take care of, burial decisions to make and items to go through. Few things, however, rival the jarring effect a debt collector call can have on us.
Even under normal circumstances, receiving a call or letter about an outstanding debt creates anxiety and fear. But dealing with the deceased’s debt also creates confusion: who is legally responsible for the debt now? The answer depends on many factors including:
o Which state the deceased lived in
o Whether he or she left any assets
o The existence of an executor
While each individual case is different, here is some general information you should know about deceased debt.
• If you live in a community property state, you are most likely responsible for your spouse’s debts.
Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
• Joint accounts typically mean joint debt.
Example: If your spouse passed away with an outstanding credit card balance on a card that you both signed up for, you are legally responsible for payment. However, if you were only an authorized user (or the credit card was in your spouse’s name only) and do not reside in a community property state, you are NOT responsible for settling your spouse’s debt.
• Your spouse’s debt does not affect your individual credit score.
Under the Equal Credit Opportunity Act, credit card companies cannot ask you if you’re married, divorced or widowed.
• An heir can be responsible for the deceased’s debt if he or she inherited an asset that was used as collateral for a loan or debt, or if an heir cosigned a loan.
Example: you inherited property (such as a home or other expensive asset) that your parent used as collateral for a business loan but did not pay back before his or her death. Creditors will have the right to foreclose or seize the property to repay the debt.
• If there are no assets (including expensive or luxury property) from which to repay debt, family members and heirs are NOT legally responsible for the deceased’s debt.
Example: You are wealthy and hold many assets; a close relative (such as parent or sibling) died with an outstanding credit card debt but left no assets or property. Debt collectors may NOT go after your assets to pay off a relative’s debt.
• Some types of inheritance that are left to beneficiaries—not the estate—cannot be used to pay the deceased’s debt.
Certain assets (including life insurance payouts, pensions and some retirement plans) that are left to heirs or spouses are exempt from the list of things that debt collectors are allowed to collect from.
• Know this about debt collectors:
They are trained to sound kind, listen to your woes and coerce you into “doing the right thing”. This is nothing but business, so don’t let a stranger’s kind words make you pay off a debt that you are NOT legally responsible for. Debt collectors will use misleading language to make you think that it’s your duty to settle a loved one’s debt—don’t allow grief to cloud your judgment. Ask a simple question first: “are you telling me I am legally required to pay this debt on behalf of ____?” If the person on the other end says yes, then take down the agency’s full name, the employee’s full name and i.d. number and make a note of the date and time of the phone call for your records.
• What you should do if debt collectors persist:
Send debt collectors a copy of the deceased’s death certificate, check your state’s debt/estate laws and contact a certified credit counselor or estate attorney.
Note: this article is for general information purposes only. Consult a qualified financial, tax or legal professional about debt collection in your state to make the right financial decisions for you.
