Debt After Death
For most people, death is regarded as the end of all mortal cares and worries. Immortality is defined by having children and family who remember the deceased after they are gone. However, debts incurred in life can haunt the deceased's survivors long after the final services are conducted. Understanding the legal boundaries and what debts are and are not collectible after death can help facilitate estate planning and ensure estate assets are divided according to one's will, rather than to satisfy debts. In this article, the questions of what is and is not generally collectible after death, who is responsible for what, and what legal remedies are available to creditors and survivors will be addressed.
Credit Cards and Death
Credit card debt enjoys a dichotomous position in estate planning. Many people use credit cards to finance end-of-life expenses such as final medical bills, disposal of remains and funeral services. This only adds to any debts accrued during the life of the cardholder, leading to a high potential for collections activity after death.
If a cardholder opens a line of credit without their partner's knowledge and dies before the balance is satisfied, the spouse is typically under no direct obligation to pay, as this is considered an estate expense rather than a personal obligation. If an estate enters probate, credit cards are usually among the last debts to be considered. Medical and legal expenses, taxes and mortgages are given precedence. Similarly, an authorized user who does not use the card in question after the death of the primary account holder is not normally held liable for any debts incurred. For this to be the case, the card must not be used after the primary holder's death or if the authorized user knows the estate lacks sufficient liquidity to cover any expenditures made on the card. In either of these cases, there is a high probability of criminal and civil action against the user if the card is used. In community property states, this may not apply as debts incurred after the marriage are considered community property even if one spouse entered a credit card agreement without the knowledge of the other.
Joint cardholders may find themselves stuck with a large bill after the demise of their partner, however. This is because joint accounts are considered communal assets and the demise of either party to the account does not relieve the surviving partner of obligation to pay. This may also serve as an exception to the
The best way to ensure collection activity is not engaged against the heirs to an estate at death is to cut up the credit cards and send them to the issuing companies along with a declaration of death of the account holder, as well as contacting the major credit bureaus. The companies then have the option to contact the executor of the estate to seek payment, but under the Fair Debt Collection Practices Act or FDCPA, once the companies have been given the name of the executor, they are no longer permitted by law to contact the heirs directly to seek payment. One should also check with the companies at the time of the primary account holder's death to find out if the account was insured, as credit insurance pays off the debt in the event of the holder's demise.
Life insurance is a key step in estate planning. Many people worry that creditors may come after their heirs' policies after their death. Because life insurance benefits are paid directly to the heirs instead of to the estate, life insurance policies are typically not considered to be legitimate avenues for collection unless one of the heirs is assigned executor status. Even then, the estate must normally go to probate and all other avenues for payment of final debts must be exhausted before any insurance monies may even be considered. Local and state laws vary on how collections activity may affect heirs and executors, making it vitally important to contact an attorney to clarify estate and debt laws in a specific jurisdiction.
Estate finances and hard assets such as vehicles, houses, and so on are considered legitimate leverage to repay outstanding debts. Even so, there are a number of factors that must be taken into account, including liquid assets of the estate, salable items that can be used to pay off final debts and estate-level income streams such as royalties or annuitized payments. Most estate laws hold that any and all estate-level assets must be liquidated before any further action may be considered. Additionally, only the executor is typically considered a suitable point of contact for outstanding post-death debts unless someone else created a debt fraudulently.
Protection From Post-Demise Debts
Credit card debt is often referred to as "unsecured" debt, meaning it is not leveraged by physical assets. A mortgage is leveraged by a house and an auto loan by the vehicle, but credit cards are leveraged solely by a user's apparent creditworthiness. Because of this, credit card debt is usually far down the list when estate resources are apportioned to satisfy end-of-life debts.
Knowing this, some creditors will attempt to reach out to heirs or other family members to recoup their losses, suggesting the heirs may be subject to legal action if they do not satisfy the debts. This is generally not true under FDCPA and opens the creditor up to civil and possibly criminal action. In such events, the heirs and/or family members should contact an attorney at once to find out what their rights are by jurisdiction and under FDCPA and other federal laws.
By notifying the credit card companies posthaste upon the demise of a cardholder, it is possible to insulate oneself against possible legal action later as an heir. The estate itself may be vulnerable, but this will largely avoid any further collection activity companies can take against heirs, leaving all life insurance awards secure.
A considerable amount of care should be taken to avoid any action that may cause even the appearance of liability. Not using cards one has been issued for any reason, advising credit bureaus and issuing companies of the death of a cardholder in a timely fashion, and proper estate planning can all help prevent end-of-life debts from rolling over to the next generation. Meeting with a qualified financial planner and seeking legal counsel at the beginning of estate planning can help alleviate the needless strain of debts, allowing the survivors time to deal with their loss rather than the legal entanglements and obligations of debt.