What Death Does to Debt

Debt is a problem that haunts many of us for our entire lives. We rack it up when we are young and spend an eternity trying to pay it off. For those of us who bought homes or tried to finance our own businesses, the burden of debt can be especially high. The one grim comfort is the once we’re dead, it’s gone.

Or is it?

The Wall Street Journal recently reported that credit card companies and banks are stalking surviving family members to collect on the debts of the dead. Where they’re not doing it directly, they’re hiring collection agencies to reach out to the recently widowed, grieving children, and even extended family members. The goal is to get someone living to agree to pay off the debts of the dead … whether they are legally obligated to do so or not.

The Legal Rules on Debt After Death

In terms of strict legality, surviving family members have no obligation to cover the debts of the deceased. These debts are to be paid out of the estate of the deceased, so if they were broke, the debts are written off (discharged). Debts that are not shared have no effect on the credit reports of living family members. Debts that are unsecured – lines of credit, credit cards, and even student loans – are typically wiped clean by dying financially strapped.

The exceptions are items where the loans or debts are co-signed and items of the deceased’s that the family would like to keep. This would include things like a shared credit card, which would still need to be paid off, or a home mortgage where the surviving member of the loan agreement would still make payments. Cars, home appliances, or furniture on payment plans would need the payments to be taken over if a family member wanted to keep the physical goods.

Extended family members or relatives who did not share a signed loan or credit agreement with the deceased are not under any legal obligation to pay their debts. Some collection companies have tried calling siblings, cousins, and in-laws to get money for “dead debts,” but contract law is clear: after death, without a co-signer agreement, there is no obligation to make payments.

Playing on Morals and Grief

To get around the legal rules, many debt collectors play on moral convictions or grief. They begin with a soft approach, sympathizing about the death, but then quickly transitioning into an offer for surviving family members to put the deceased’s debts to rest. By agreeing to take on payments under a perceived “moral obligation” to pay, family members have the debts transferred to their own names.

Letters and phone calls flood in after death, targeting children and spouses who are simply trying to wrap up the affairs of their parents or loved ones. Veiled threats are illegal but common, implying that the deceased’s name will be ruined or that non-related assets will be seized to cover old credit card debt or outstanding medical bills. Grieving and confused about the finer points of the law, many family members agree to payment plans just to make constant calls or frightening letters stop.

Despite numerous class-action lawsuits underway around the country citing unlawful harassment and abuse by collection agencies, these practices are increasing. It’s partly economics – older Americans have fewer savings than past generations and healthcare costs lead many into debt at the end of their lives. Banks and credit card companies don’t want to take the losses, so they are looking anywhere they can for a living relative to agree to foot the bill.

What to Do If You’re Targeted

Reading about debt collection after death is one thing … getting the call is a whole other matter. Since the practice is spreading, be prepared to receive collection calls after the death of any family member, even if you weren’t close. Some debt collection agencies have staff members who comb obituaries to find names of any living family members to call – and some companies even reach out to close friends and neighbors in an attempt to find out who the legal executor of the estate will be.

If you get a call, here are a few tips to end the call quickly and to avoid creating liability for debts that death should erase:

Don’t agree to anything over the phone. When you’re in a period of grief, it is easy for professional debt collectors to get you to agree to things you wouldn’t ordinarily do in a rational situation.
Request a copy of the debt agreement. If you know you’re not a co-signer, say so and refuse to pay. If you’re not sure if you’re a co-signer, instead of agreeing to anything, request a copy of the original debt agreement.
Remind callers you have no legal obligation to pay and tell them to stop calling. Collectors are persistent, but they can take a hint. Where a verbal request doesn’t work, put your request in writing. Reinforce to collectors that their only contact should be with the executor of the estate, and even if that’s you, once a written request has been received, calls should stop.
Complain to the Federal Trade Commission and your state Attorney General. The FTC has sued six collection agencies in the last two years over their practices, and states are responding to this issue … but they don’t know who is breaking the law unless you tell them. While trusting the government to do the right thing isn’t a natural response, these are groups that have the power to stop collectors who may be harassing you.
Reach out for legal help. Contact a lawyer or counseling society if you feel you are being harassed or deliberately misled by a collection agency.

Don’t pay for debts that aren’t yours and debts that are legally wiped out by death. Don’t let collection agencies make your period of grief an extended torture. Stand up for what’s right under the law and don’t let anyone prey on your emotions!

For up to date fine print on debts after death and consumer rights about debt in general, visit the FTC’s page dedicated to the issue: https://www.ftc.gov/bcp/menus/consumer/credit/debt.shtm. Pay particular attention to the Consumer Alert title “Paying the Debts of a Deceased Relative: Who Is Responsible?”