What happens when a deceased person has unsecured debt?
Most unsecured debt is personal debt that can only be collected from the person who entered into the contract. When a person dies, outstanding debts will be paid by the deceased's estate. Secured debts, medical bills, funeral costs and taxes are usually paid first.
Once these outstanding debts have been paid, unsecured bills such as credit card debt will be taken from the remaining estate. If there are insufficient funds, the unsecured debt may be written off as a loss to the lender depending on the person's marital status and applicable state laws.
Liability of Relatives
Most relatives of the deceased cannot be held responsible for the deceased's debts. Under the Fair Debt Collection Practices Act, most relatives and heirs have no obligation to pay for the outstanding debt.
However, if the deceased resided in a community property state, the spouse may be liable for part of the debt. Depending on state probate laws, there will be limits on how much a surviving spouse is liable to pay.
Co-signers and Authorized Users
If another person had a joint account with the deceased, or there was a co-signer relationship for unsecured debt, the surviving individual is usually responsible for debts on the account. An authorised user on a line of credit or credit card is not responsible for the debt as the contract with the lender was solely with the deceased.
If a lender is contacting you about the deceased's debt, the creditor may not know the person died. The executor of the estate, the deceased's lawyer or the probate court handling the estate should be contacted with the creditor information, and the lender should be informed of the death. The creditor may require a copy of the death certificate for verification.
Debt Collection Rights
Just because a person is not responsible for the debt doesn't mean debt collectors will not try to collect.
If a debt collector tries to coerce you into paying the debt unfairly, you may write to the lender or debt collector requesting that they stop contacting you. If the collection attempts continue, you may file a complaint with the Federal Trade Commission by calling 877-382-4357.
Unfortunately, there are unscrupulous individuals who prey on surviving family members. These con artists contact the survivors, falsely claiming that the deceased individual owed them money.
If you do get a call from a person claiming to be a creditor, request that the account information be sent to you along with a copy of the original contract.
This will usually stop a false collection attempt. If they continue to pursue collections, contact the Attorney General in your state.