How Debt is Settled after Death

While you are still grieving your loss, you may be inundated with letters and phone calls from debt collectors.

Even if your loved one was current on all of his or her debt obligations, creditors want to get to his or her estate and family members as soon as possible.

Do not pay anything until you know whether you are liable. You may in fact not be personally responsible for any of these debts. Debts should be settled through the estate and paid for by estate assets. If you are the executor, you have an obligation to pay legitimate claims and protect the estate assets from unsubstantiated claims.

When are you personally liable for your loved one’s debt?

Debt doesn’t go away after a person dies. The obligation to pay debts generally shifts to the estate. But, what if the estate does not have enough money to pay? Usually, the creditor has no choice but to write off the balance, but not always. You may owe the unpaid balance on a debt if:

  • You co-signed for the loan
  • You co-owned real estate or other property
  • You incurred the debts, such as credit card debts
  • As executor, you did not comply with the probate laws
  • The state imposes a debt obligation on the spouse

Your rights against debt collector harassment

Debt collectors can be aggressive. When does that conduct cross the line? The Federal Trade Commission (FTC) has made clear that family members do not personally owe creditors payment on their deceased relative’s debt, except under specific circumstances, such as those described above. In addition, the Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from engaging in deception, abuse, or unfair practices. The debt collector is allowed to contact you, the decedent’s other family members, executor, or other person authorized to pay the debt, such as estate’s lawyer, but not act abusively.

You can stop a debt collector from contacting you. The estate may still owe on the debt, but you can be left in peace while the estate makes arrangements to pay. To do so, you must send a letter by certified mail and return receipt. Upon receipt of the letter, the debt collector must cease communicating with you. Telling the debt collector by phone isn’t enough under the law.

The estate settles debts

Almost anything owned by the estate may be used to satisfy debt. This includes cash, stocks, automobiles, boats, jewelry, and real estate. Creditors have a prescribed time period to submit their debts to the estate. The executor may challenge some debts and negotiate settlements for others. Generally, debts are paid in this order:

  • Funeral and burial costs
  • Costs incurred in the administration of the estate
  • Medical expenses arising out of treatment for the terminal condition
  • Secured creditors, such as mortgages and car loans
  • Debts that have legislative priorities, such as child support, rent, and wages
  • Unsecured creditors, including credit card purchases

You are going through a difficult time; having an experienced counselor by your side can make all the difference. Contact Lissner & Lissner, LLP on the telephone (212) 307-1499 or online can protect your family and the estate from creditors.

Micheal Lissner
About the Author: Michael Lissner
Micheal D. Lissner is an experienced trust and estate planning and administration attorney serving the New York City area. He handles cases ranging from estate planning to trust administration, medicaid planning, elder law, and representation of survivors of the Holocaust and their heirs