Settling the debts of someone who has died

Debts of the deceased are settled through an estate

When there is a death it’s generally up to the estate’s executors to notify any creditors along with the credit bureaus – Equifax, TransUnion and Experian.  Michigan State University Extension suggests notifying the credit bureaus as it can help prevent possible identity fraud and is a general courtesy to the creditors.

In order for creditors to collect any outstanding debt, they would have to file a claim against the estate. State laws determine how claims must be filed. Hopefully the deceased has completed a will. When you begin notifying creditors of a death, it’s important to make sure to include a copy of the death certificate as well as the estate’s contact information. By providing this information you may be able to prevent the creditors from contacting you or your other family members about repayment of the deceased’s debts.

Unfortunately it’s all too common that debt collectors repeatedly ask family of the deceased for payment.  If the debt is in collections at the time a person passes, it’s quite common for creditors to convince loved ones to make a payment.

Federal Trade Commission (FTC) guidelines limit aggressive tactics for debt collectors trying to get money from the relatives of someone who has died. The Federal Register (Vol. 76, No. 144 / Wednesday, July 27, 2011 / Notices) states, “When a person dies, creditors and the debt collectors they hire usually have the right to collect on the person’s debts from the assets of his or her estate.”

The proposed statement addressed three issues under the Fair Debt Collection Practices Act (FDCPA) pertaining to debt collectors who attempt to collect on the debts of deceased persons:

  1. With whom a debt collector may lawfully discuss a decedent’s debt.
  2. 2. How a debt collector may locate the appropriate person with whom to discuss the debt and seek payment.
  3. How a debt collector can avoid misleading consumers about their personal obligations to pay the debts.

The FTC says regardless of whether the deceased was current or delinquent on a bill at the time of death, creditors and collectors, for a period of time, generally are permitted under state law to seek and recover from the decedent’s estate.

To understand consumer protection concerns related to collecting on the debts of the deceased requires knowledge not only of the FDCPA but of state probate and estate law as well. Unfortunately, there is no single set of laws and procedures that governs the resolution of an estate in all or even most states. Actually, some individual counties have their own requirements.

It’s best to consult an attorney before any debts are paid out of an estate, including credit card debt. Keep in mind a deceased credit closing letter or certified letter testamentary issued by probate court is often required by financial institutions, the federal government or stock transfer agents before the transfer of money or assets of a person’s estate can be made to the executor.

The FTC has information for consumers about what to do when a loved one dies and debt collectors are calling. To learn more see: Paying the Debts of a Deceased Relative: Who Is Responsible?