Debt after death: Who pays? - AmericaNowNews.com

Finance

Debt after death: Who pays?

You can't take your debt to the grave, but it can come back to haunt your loved ones after you've passed.

The ink on Michael Brooks' obituary had barely dried before page after page of unpaid bills started piling up for his partner to deal with.

"I just put a copy of the death certificate right in there with the bill, and mailed it right back to them," Barry Holcomb says.

There was little, if any, of Brooks' savings left after his battle with a long and painful debilitating disease. 

"I was shocked when I was reviewing his medications with the hospice nurse and she said 'Oh yeah, that's $1,200 a bottle.' That was just one of about 14 medications he was on," Holcomb recalls.

Creditors and debt collectors have a right to the money they're owed, but according to the Fair Debt Collections Practice Act, family members also have rights.

To answer the question about who is responsible for debts after death, we took our questions to the Federal Trade Commission in Washington, D.C.

Medical, credit card and other bills are generally paid out of the estate of the deceased.

Generally, relatives or partners like Holcomb are not legally and certainly not morally responsible to make up the difference.

For spouses, most states have provisions that protect them from going penniless as a result of creditor payouts.

If the "past due" notices keep arriving in the mail and there's simply no money left to the estate, someone's not getting paid.

"Essentially, the creditor just has to eat that cost," says Tom Pahl, Assistant Director of the Federal Trade Commission's Division of Financial Practices.

Debt collectors have a right to talk to the spouse or the executor, but when the phone rings, the protection of the Fair Debt Collections Practice Act kicks in and prohibits collectors from using abusive, unfair, or deceptive practices.

"They can't use obscenity, they can't call you a number of times to harass you, they can't threaten you with lawsuits or physical harm, " Pahl says. "All sorts of things like that are prohibited by Federal Statute."

The FTC says that if you're not the person creditors should be calling, don't offer up any personal information.

Instead, tell them who is in charge of the estate. They have a right to ask and know.

Hanging up or avoiding their calls can be more expensive for everyone in the long run.

"If the creditors or debt collectors can't figure out the right person to talk to, they may have no recourse except to essentially sue the estate to collect on the bill," Pahl warns.

If you are the responsible party, it's your right to ask a collector to verify a debt if you're not sure what the bill is for or if the amount is correct.

"On both sides, it's really a matter of being respectful and honest in your dealings, and that will make an already tough conversation go as well as possible," Pahl advises.

Before anyone can rest in peace, planning ahead is Pahl's best advice.

Appoint in advance a business-savvy relative, friend or attorney to responsibly manage your affairs.

By preparing for the process and understanding your rights and the creditors', you can often ease some of the hassle others will face after you are gone during their time of heartache.

If you think a collector has crossed the line, contact the FTC and the Attorney General's office in your state. They can bring suit against a creditor that violates the law.

Additional Information:

  • According to Tom Pahl of the FTC, state law determines who gets paid first. "In most states, not surprisingly, or maybe surprisingly, taxes are something that usually has to be paid first," says Pahl.
  • State statues will usually dictate the pecking order of who gets paid next, often with medical institutions being high on the list.
  • Pahl says there are two major types of debt: secured and unsecured. With secured debts (like your mortgage), if an individual cannot pay, the bank can take the house. With unsecured debts, like a credit card bill, if there is no more money in the estate, the creditor absorbs the loss.
  • Pahl recommends individuals appoint both an Executor and a Supportive Executor. Often and individual will pass and the Executor lives out of state. A Supportive Executor who lives close by can help with the immediate day-to-day issues while the Executor works on the specifics of the estate.
  • Pahl says many consumers have reported being told by collectors that they have a moral obligation to pay out-of-pocket to cover what the estate cannot. The FTC says there is typically not a legal obligation and it is up to the individual to decide if they want to pay for moral reasons.
  • Barry Holcomb recommends keeping a log of all financial transactions for family reference. He says some family members of the deceased may have questions as to how certain finances are being managed, and that by having it recorded on paper can ease their worries.

 The Federal Trade Commission (FTC) is the country's consumer protection agency.

  • The FTC enforces the Fair Debt Collection Practices Act (FDCPA) which prohibits debt collectors from using abusive, unfair or deceptive practices to collect from you.
  • Debt collectors may not contact you at inconvenient times or places, such as before 8 am or after 9 pm, unless you agree. They may not contact you at work unless they're told you're not allowed to get calls there.
  • Talk to the collector at least once to resolve the matter even if you don't think you owe the debt, can't repay it immediately, or think you are being contacted by mistake.
  • You can cease communication by sending a letter by certified mail (make a copy for yourself) and pay for a return receipt to document that the collector has received your letter. This will not get rid of the debt, but you can ask to not be contacted again. The debt collector can still sue you for the money owed.
  • If you are represented by an attorney, the debt collector must contact the attorney. Without an attorney, a collector may contact other people about your debt, but only to find out your address, home phone number and where you work. Outside of obtaining location information, collectors are generally not permitted to discuss your debt with anyone other than you, your spouse or your attorney.
  • Collectors must send a written "validation notice" proving how much you owe within five days after first contact. The name of the creditor and how to proceed if you don't think you owe the money must be included.
  • You may ask for verification of the debt and a cease of communication if you think you do not owe the money. That letter must be sent within 30 days after you receive the validation notice.
  • Collectors may not harass, oppress or abuse you or third parties using threats of harm or violence, publishing names of those who refuse to pay (except to credit reporting companies), using profane language, and repeatedly calling to annoy.
  • Collectors cannot lie to obtain a debt by making false claims that they are attorneys or government representatives, false claims that you have committed a crime, false representations that they work for a credit reporting company, misrepresentations of the amount you owe, false claims about the legality of the forms they send you.
  • Debt collectors are prohibited from saying you will be arrested for non-payment, saying they'll seize, garnish, attach or sell your property or wages, or saying legal action will be taken against you if doing so would be illegal.
  • Debt collectors may not give false credit information about you to anyone or use a false company name.
  • Debt collectors may not use unfair practices such as:
    a.) Trying to collect interest or fees on top of the amount owed unless the contract that created the debt or state law allows that interest or fee,
    b.) Threaten your property unless it can be done legally, or
    c.) Contact you by postcard.
  • Collectors must apply your payments to the debt you select if you owe more than one to them.
  • Collectors can sue you to collect if you do not pay. If judgment is against you, the collector or creditor may obtain a garnishment order directing a third party (like your bank) to pay them from your account. Wages can be garnished if the court orders.
  • Many Federal benefits like Social Security, Veteran's, Civil Service, student assistance and military annuities are exempt from garnishment, but not in all cases.
  • You may sue a collector within one year from the date of violation, for damages suffered because of illegal collection practices (i.e. lost wages, bills, attorney fees). 
  • Report any problems you have with a debt collector to your state Attorney General's office (www.naag.org) and the Federal Trade Commission (www.ftc.gov). Many states have their own debt collection laws that are different from the federal Fair Debt Collection Practices Act. Your Attorney General's office can help you determine your rights under your state's law.

The following information is from Documents & Resources for Small Businesses & Professionals:

  • Generally, the Estate and not the relative is responsible for paying their debts. If there is not enough in the estate, they typically go unpaid.
  • Typically, relatives have no legal obligation to pay the deceased debts if it was not their spouse. Under state probate law, even a spouse's obligations are limited. Ask an attorney about your obligations.
  • Do not give out your personal information (SSN, birth date, account numbers) to a collector. Put them in touch with the deceased's representative. Some con artists check obituaries and then contact relatives to commit identity fraud.
  • Other than to get the representative's location, a collector is not allowed to disclose your relative's debt to anyone other than their spouse, parent (if a minor) or guardian.

Copyright 2012 America Now. All rights reserved.

Powered by WorldNow