Where does your debt go when you die?
Debt is really the last thing you’re thinking about when you lose a loved one. And really, when you’re moving along in life and creating debt, you’re not thinking about what happens to all of this if I die. We all kind of live in the moment.
This is probably something we should put a little bit more thought into while we are alive and able to make decisions that will affect those around us if something were to happen to us. As a couple, particularly an older couple, try to keep yourself to a strict budget so that your debt doesn’t go over a certain amount each month. Keep a tight rein on it and always pay yourself first which may be difficult but is vitally important.
Paying yourself first means, try to put at least 10% of what you make into a savings that you never touch. This will be a huge help with expenses in the event of your death.
Too many folks in America are finding themselves having difficulty making ends meet. They are acquiring more debt than they have in the past in order to meet the cost of living, but it’s affecting the older generation especially hard. The Federal Reserve notes that households led by persons aged 55-64 are carrying credit card debt as are those led by persons aged 65-74.
What happens to credit card debt when you die? If an older spouse or aged parent passes and leaves all of their credit card debt, who is responsible? The debt doesn’t go away when we pass.
This gets a little complex actually. If it’s a probate-type situation, the creditors have to file a claim with probate against the estate for the assets. There are a whole slew of things that will come first before the credit cards, e.g. funeral costs, administration costs for the estate, U.S. Federal and State taxes, etc. The credit card companies are the very last items paid by the estate.
We also have to determine if, in fact, there is another person who may be responsible, e.g. a spouse.
– If the card was in the individual’s name only, then only that person is responsible for the debt. The creditors cannot ask anyone else to pay what is owed on the cards.
– If a spouse or family member or business partner signed the card as a joint account holder, then they are considered the surviving account holder and would be responsible for the account balance as an active account member. It would be assumed that they would continue to use the card
– If there is another person on the account as an authorized user but not considered to be a joint account holder, that person is not responsible in any way for the debt.
There have been instances where the family member or spouse takes a credit card that only has the deceased’s name on it and uses it after the passing accruing additional debt. The credit card company then goes after them for the entire balance because they assumed ownership by actively using the card and adding to the debt on it.
An exception to all of the rules are the states with community property laws, e.g. California. With this law, everything that a couple obtains during their lifetime together is considered jointly owned. That includes all of their assets and, in the instance of death, that includes all of their debt.
Now, if there’s not enough money in the estate to cover all of the debt, the creditors will have to deal with it. They can call and plead and do their scheme, but those debts will not be paid at that point. It will not stop them from bothering you. They will do anything and everything to try to get their money, but you have to stand strong and not let any of them intimidate you because that is what they will try to do.
The Federal Trade Commission actually took it upon themselves to analyze a multitude of calls that collectors had made to decedent’s families and didn’t like what they were hearing. A lot of the debt collectors actually skimmed the persons’ obituaries in search of relatives that they could then cold call to see whether or not they were the ones handling the estates. How the relatives responded would let the creditor know whether they should pursue recovering the financial obligations for that particular individual.
Even more horrific, some of the collectors led the relatives to believe that they had a ‘moral obligation’ to pay outstanding balances and continuously asked them to pay voluntarily in order to satisfy the financial obligation. These creditors take advantage of the fact that these people are very vulnerable after their loss. They are at times in shock, confused and it could cause them to agree to a financial burden on themselves that they would not legally be responsible for in response to the creditors bullying.
The Federal Trade Commission’s new guidelines protect the relatives of the deceased by putting stipulations on the debt collectors and how they speak to these folks when they contact them.
– Collectors are only to speak with a spouse, a parent, a guardian or an estate executive/administrator. They can speak with other relatives as a means to reach one of these people.
– Collectors are prohibited from from leading these relatives into believing that they are financially responsible to pay off these account balances when they are not. They need to be fully transparent meaning they have to explain that repayment must come from the deceased’s estate and, only if this is the case, that the person they have called is not responsible for paying the balance.
– Collectors are not allowed to use the term ‘debt’. They may only indicate that they are attempting to discuss repayment of a deceased person’s bills.
– Collectors may not contact relatives at, what would be deemed, their inconvenience.
Unfortunately, debt collectors don’t have to follow grace or respect. They can begin calling immediately follow the passing of an individual. If they contact you following your loved one’s death, the best recourse is to keep it short. You are under no obligation to answer their questions unless you are the one handling the estate.
WHAT YOU SHOULD DO FOLLOWING A DEATH THAT MAY MINIMIZE COLLECTORS CALLS
– Obtain numerous copies of the deceased’s death certificate to provide to all of the financial institutions and creditors (in addition to a multitude of other places). These places may be hesitant to talk with you about the financial affairs or take any action without seeing that first.
– Cut up the credit cards and send them to the issuer with a statement that includes the date of death. Prior to doing that, call the number on the credit card statements and close all of the credit card accounts. Ask them how they would like you to submit the death certificate, via email, fax or certified mail. Check if there was possibly any insurance on the cards that may pay them off after death.
– Contact and provide death certificates to the three credit reporting agencies, Equifax, Experian, and Transunion. Let them know that you want that credit profile closed immediately. Best to do this in writing and send certified mail. Provide all personal information for the deceased and yourself. Check back in approximately six weeks to make sure everything has been taken care of. When someone passes, this is the most popular way for identity theft to take place, and new credit use gets attached to deceased credit reports all the time. You need to monitor the reports closely and carefully regularly for a while.
– Inventory the estate to determine what assets were owned at the time of death. Contact any professional advisers, e.g. bankers, CPAs, stockbrokers that the deceased may have worked with so that you can effectively gather up all of the information and turn it over to the estate executive.
– Make a list of outstanding debts and bills including everything that is owed out all inclusive of mortgage, car payment, taxes, credit cards, etc. Make sure that the estate executive has this information.
– May not find this necessary if you have an estate executive but it may be a good compliment to or a substitute for. You could contact an estate attorney to handle the legal issues relating to your family member’s death.
If you have all of these things in line, it may reduce some of the calls from the collectors because you’ll actually be contacting them before they have a chance to contact you.
The idea is to reduce as much stress for yourself as possible. The most important thing to remember is to take things one step at a time. The first step is to take care of you and allow yourself time to go through the mourning and grieving process. That is all that needs to be dealt with initially. There’s plenty of time for all of the other stuff.