How to Handle Debt After Death

By April Lewis-Parks

Is it possible for you to be faced with debt in life and after death? The answer is yes. As you can’t take your debt with you to the grave, it can definitely linger and haunt your loved ones.

Creditors, debt collectors, and lenders have a right to the money that they are owed, but according to the Fair Debt Collections Practice Act (FDCPA), family members have rights to. In general the deceased debts are not the responsibility of the heirs. By law, the credit card company is required to make a claim that will go through probate only. The debts of the deceased are the responsibility of the estate. However, if there are no assets or the debts exceed the amount owed, then the outstanding debt is written off.

The FDCPA protects the deceased family members by making sure that creditors abide by the law and do not unlawfully track down and harass their family members. Creditors and credit collection agencies may contact an heir, but once you give them the contact information for the person handling the estate, by law, the calls must stop. Additionally, lender and collectors are not allowed to mislead those heirs in thinking that they have a legal responsibility to pay off those debts.

Who Is Responsible

If a husband and wife share a joint account, then when one dies the other one is held liable for all debts owed on that account. But if the deceased was the only listed user on the account, then the credit card company will just have to absorb the loss. Also if the deceased had their spouse listed on the account only as an authorized user, then they are not liable for the debt either.

In cases where a couple is married and live in a community property state, and a debt is incurred, then that debt can be considered community property, even if the deceased was the only one who took out the loan or credit card. In these cases the living spouse may be responsible for the debt and should seek assistance from an attorney.

Children, friends, and relatives cannot inherit debt. A credit card company cannot legally force someone else to pay a debt that belongs to someone who has passed on.

What Happens When The Estate Goes To Probate

Once an estate goes into probate, the court will decide which creditors and lenders get paid prior to any heirs receiving an inheritance. But credit cards are definitely one of the last ones to be paid. Priority liabilities include back taxes owed, mortgages, Medicaid, administrative expenses, and funeral expenses. Also check with your state’s law to see what steps they recommend for you to take when dealing with debt and probate. For example, in California the law requires that an heir gives written notice to creditors when the probate case is active. This gives that creditor four months to put in a claim.

What Should You Do

If you are an heir to a relative that dies with unpaid credit debt, make sure you first cut up the credit card, if you have access to it, and send it, along with a statement of the date of death directly to the credit issuer. Also you will need to contact all three credit reporting bureaus (TransUnion, Equifax, and Experian) and inform them of the date of death as well as ask them to close the deceased credit file. Most importantly, the heir should check to see if there was any insurance on the credit cards that will pay off the total amount due at death.

The key thing to remember is that if the deceased had an insurance policy, the beneficiary is paid directly and not the estate. This will leave the heir with money while continuing to leave the credit card debt unpaid.

April Lewis-Parks has more than 15 years of experience in the financial sector, she is a certified financial counselor, and a consumer affairs advocate. As the director of education and public relations for Consolidated Credit she is dedicated to generating awareness about personal finance issues and acts as their consumer affairs advocate. As host the of MissMoneyBee.com, she promotes financial education and offers timely and informative personal finance articles to educate the public. April’s promotional efforts can be seen in past issues of the New York Times, Washington Post, Newsday, Consumer Reports, the Business Journals, Money Magazine, Glamour, Cosmopolitan, Family Circle, among others. Connect with April on Google+.