Recently, the Federal Trade Commission (FTC) announced new guidelines to help clarify what debt collectors can do to try to collect a debt owed by a deceased person. The FTC says the new guidelines aim to balance collectors’ need to try to collect from the estate—if there is one—with protecting relatives or other survivors from being pressured to pay debts for which they aren’t legally responsible.
However, to truly understand the new guidelines and why they were necessary, you first need to understand the traditional process for paying the debts of someone who has died, how that process has changed over the past several decades, and the problems those changes have created.
It used to be that when someone died, an expensive and time-consuming court process called probate was initiated, which was managed by the deceased’s executor (called an administrator in some states). During probate, debt collectors (as well as creditors) filed claims with the probate court asking to be paid from the assets in the deceased’s estate, and the executor paid as many of the valid claims as possible out of the estate.
An estate is simply all of the assets that someone owns at their death. Certain debts and taxes (if any) must be paid from the estate. Whatever is left is distributed to beneficiaries, heirs or survivors. However, certain kinds of assets are not subject to the claims of debt collectors, or creditors, because they don’t go through the probate process and instead pass directly to the deceased person’s beneficiaries. Examples include joint assets, the proceeds from a life insurance policy naming a beneficiary other than the estate, or most retirement accounts.
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Over the past couple of decades, most states have instituted cheaper, quicker, more informal probate processes and they’ve also expanded the kinds of people who are entitled to pay the debts during these processes. In other words, someone other than an executor may be responsible for paying them when an estate does not go through the traditional probate process. Also, many states have begun exempting very small estates from having to go through probate at all. Instead, these states let someone called a personal representative (in some states this person may have a different title) to settle the deceased’s estate—including paying his debts—through a non-court process.
The problem with these less formal processes is that it’s not always obvious to debt collectors whom they should contact to try to collect on a debt owed by a deceased person. As a result, many collectors cold call the deceased’s relatives to find out if one of them is handling the affairs of the deceased, and some of those collectors leave the relatives with the impression that they have a legal or moral obligation to pay the debt of their dead loved one, when they do not, or they try to pressure the relatives in other ways to pay the debt.
“If someone dies and there is no formal process, it can get pretty wild,” warns Brad Wiewel, a board certified estate planning lawyer with The Wiewel Law Firm.
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Who Is Legally Obligated to Pay the Debts of a Deceased Person?
Despite what some debt collectors may want you to believe, if one of your family members dies, with a few exceptions, you are not obligated to pay his debts. In other words, if there is not enough money in your family member’s estate to pay everything that he owes, the debts don’t get paid.
But there are exceptions. If your spouse dies and the two of you had outstanding joint debts at the time of his death that are not paid off by his estate, then you are legally obligated to pay the debt. Also, if you and your deceased spouse lived in a community property state (Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin), you may be legally obligated to pay his outstanding debt, even if you did not co-sign for it, assuming the debt was incurred during your marriage. There are also some debts, like medical debts, that spouses may have to pay, even if they don’t live in a community property state. If you are unsure as to whether or not you are responsible for paying the unpaid debts of your deceased spouse, talk to an estate planning or probate attorney.
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The Federal Fair Debt Collection Practices Act Still Applies
It’s important to note that if you are responsible for paying the debts of your deceased spouse, or if you are the individual who is responsible for paying the debts of a deceased person who is not your spouse, you are still protected by all of the provisions of the federal Fair Debt Collection Practices Act (FDCPA), and by any laws in your state that may apply to debt collectors. That means you are entitled to have a debt verified in writing by a debt collector, the debt collector is prohibited from harassing or threatening you or from contacting you at unusual or inconvenient times or places—late at night or very early in the morning. Also, you have a legal right to send the collector a cease contact letter. If you are not responsible for the debts of your deceased relative, then the debt collector would not be allowed to pursue you for the debt.
[Infographic: What To Do If A Debt Collector Calls]
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