Can Debt Collectors Reach Beyond The Grave?
If someone dies, their debt does not necessarily die with them. What happens to it depends on the type of debt and what assets are in their estate. However, debt collectors will aggressively try to collect on the debt even if they aren't legally entitled to. Here's what you need to know to stop them.
Family Members Are Not Responsible for Debt
In some countries, a person's children or their entire family might be held responsible for any outstanding debts. That is not the case in the United States of America.
Debt belongs solely to the individual, or in the case of a married couple, to the couple. Debt collectors cannot force family members to pay.
They will often make phone calls asking for payment saying it's a matter of honor, but feel free to hang up on them and to sue them for harassment if they continue.
Co-Signers Are Responsible for Debt
Co-signers are responsible for the primary signer's debt if the primary signer dies. It's exactly the same as if the primary signer defaulted on the loan as far as debt collection law is concerned.
For this reason, co-signers should be very wary of what obligations they are taking on even if they think the person they are co-signing for is perfectly responsible. If they still wish to co-sign, it may be a good idea to put an appropriate life insurance policy into place.
Debt Does Not Just Disappear
When a person dies, their debt is not automatically discharged. Debtors are free to make a claim against their estate.
This is part of the reason why even small inheritances must be reviewed by the probate court. Debtors have a priority interest in the estate over beneficiaries until any outstanding debts are paid in full. Potential debtors must be notified and there is a waiting period for others to make a claim.
The executor of the estate is responsible for paying any outstanding debts or challenging the validity of claims by creditors.
Certain Assets May Be Protected
There are several legal ways to avoid probate and debt collectors. These include trusts, retirement accounts, and lifetime gifts.
There is an incredibly fine line between legal asset protection and fraud, so it's critical to work with an attorney to set up any debt shielding methods.
To learn more about debt collection during probate, contact a local estate planning lawyer, such as Hamilton Michaelson & Hilty LLP.