When a loved one passes away, one of the last things you want to hear is debt collectors calling to try to take their money. Unfortunately, dealing with a loved one’s debt is a chore your family will have to take care of. Here’s what you need to know.
1. Debt Isn’t Inherited
Debt does not pass on to family members. If an account is in one person’s name, creditors can’t make anyone else pay off the debt. If someone dies with debt and no assets to pay it off, the creditors take the loss.
2. Co-Signers Become Fully Liable
One common point of confusion is the responsibility of co-signers to an account. Many people don’t realize that co-signing involves much more than helping with the credit check.
When you co-sign a mortgage, credit card or other loan, you’re saying that you will pay in full if the primary account holder can’t. This includes if they can’t pay due to death, and creditors will coldly enforce this provision.
You should also be aware that some loans may contain a provision that they become payable in full immediately upon either the primary account holder’s or the co-signer’s death. This could require the survivor to refinance the loan, raid their retirement account or take a negative hit to their credit when the original loan defaults.
3. Spouses May Still Share Liability for Individual Accounts
One more exception to the debt isn’t inherited rule is spouses. Some states hold spouses liable for the other’s debt even if the account wasn’t a joint account.
One way this can happen is in community property states where any debts acquired during marriage become marital debts regardless of whose name was on the account.
Another is where courts decide who’s responsible based on who benefited from the debt rather than who signed for it. If debt benefited both spouses or the household as a whole, it becomes the responsibility of both.
4. Creditors Will Still Ask You to Pay
Just because creditors can’t make you pay doesn’t mean they won’t ask you to. Often, they’ll try to guilt you into it by saying things like it would harm the deceased’s honor or that you should do the right thing.
Not only do you not have to pay them, but by agreeing to pay in part or in full — even if you’re just trying to get them off the phone — you could be assuming legal responsibility for the entire debt. Simply tell the creditors to never contact you again, and they must honor your request.
5. Creditors Can Make a Claim Against the Estate
Debt may not be inherited, but it can reduce your inheritance. Creditors get first rights to any property in the estate up to the amount of the outstanding debt.
This applies even to family heirlooms left to a specific person in the will. For a mortgage, creditors can foreclose and take the family home.
If you want to keep a specific piece of property and the estate doesn’t have enough cash to cover outstanding debts, you will have to buy it from the estate at its fair market value.
6. Both You and the Creditors Need to Give Notice
Creditors only have a set period of time to make a claim against an estate. After that, they forfeit any claims.
At the same time, you can’t try to avoid creditors by keeping them in the dark. Depending on your state, you may need to file in probate court, notify creditors directly or take some other action. Failure to follow the rules could extend the creditors’ time to make a claim or leave you personally on the hook for the debts.
7. Don’t Use Credit Accounts
It’s illegal to use a loved one’s credit accounts to pay for things like funeral expenses even if the entire family agrees. Because the account isn’t in your name, it’s considered fraud.
Additionally, you shouldn’t use a loved one’s accounts to pay any bills they owed. Again, you technically don’t have legal authorization to do so. Instead, notify anyone you receive a bill from to cancel the account and contact the estate’s executor.
8. You Should Tell the Credit Bureaus
You should promptly notify the three major credit bureaus of a loved one’s passing. This will prevent identity thieves from trying to assume their identity and open new accounts in their name.
At the same time, the executor can request a copy of their credit report to identify debts that will need to be paid.
9. You Will Need Copies of the Death Certificate
Every time you work with a creditor or go to close an account, you will need to provide a copy of the death certificate. This lets the company know that you have legal authority to take action on the account and that your loved one isn’t faking their death to try to skip out on the debt.
10. The FDCPA Still Applies
The Fair Debt Collection Practices Act and other consumer protections continue to apply after death. If creditors harass you or lie about your responsibility for the debt, you may be able to sue them. If creditors wrongfully report your loved one’s debt on your own credit report, you have the right to have that information removed.
To protect yourself during this difficult time, you may wish to sign up for credit monitoring or other services to keep you one step ahead of identity thieves and unscrupulous debt collectors.