In today’s economy, debt collection companies are getting creative when it comes to collecting delinquent debts — some say too creative. In cases where a credit card holder has died, the debt has always been legally addressed through the probate process.
These days, however, banks and collection agencies haven’t been as successful at collecting through probate, so they are seeking alternative methods for debt collection after death. When it comes to collecting credit card debt, one increasingly common practice is to call surviving relatives and attempt to convince them to pay.
Post-death debt collection is now a lucrative specialty within the debt-collection industry. This nationwide practice recently came under scrutiny in an investigative journalism piece in the Minneapolis Star Tribune, and we’ll summarize the issues in this two-part series.
Relatives Almost Never Have Any Obligation to Pay a Deceased Family Member’s Debts
Your debts are not erased when you die. That being said, it’s extremely rare for relatives to have any legal obligation to pay a deceased relative’s debt. Surviving spouses can have some obligation, but it is limited by probate law. Virtually always, the only people legally responsible for a deceased person’s debts are those who already had some responsibility for the debt, such as co-signers of loans or joint credit card holders.
Otherwise, creditors can present their claims in probate court. The deceased person’s personal representative (or executor) determines the estate’s total assets and debts and pays legitimate creditors before passing any remaining assets on to beneficiaries. When there are not enough assets to cover all of the debt, some go unpaid.
What Is the Argument for Allowing Collection Agencies to Call Surviving Relatives?
Many estates aren’t going through probate anymore, either because they are too small or due to advance estate planning. Collectors say that calling the family is the only way to find out if the deceased has any assets.
“Collecting a debt is hard enough even when you know a person is alive,” said one collections attorney. “But if you have a dead debtor, and you can’t even call a relative? Then it becomes impossible.”
Another reason is that late-life debt is skyrocketing. The median level of debt among families headed by someone 65-74 is rising faster than that of any other age group, and an increasing percentage of that is made up of credit card debt.
“I’m sure there are heavy discussions right now among the major banks and credit card companies on how to handle the debts people are taking to the grave,” said Ohio State University economist Lucia Dunn.
Even some outside the industry argue that a fair alternative hasn’t been proposed. When no probate has been filed, for example, debt collectors have no other way of finding out who is administering the estate, contends attorney Manny Newburger, who teaches consumer protection at the University of Texas School of Law.
“If there are assets, shouldn’t the creditors be paid before the family walks off with the jewelry and the TVs and the furs and whatever else there may be?” Newburger asked.
In part 2 of this series, we will discuss arguments against the practice, along with current creditor harassment lawsuits being filed under the Fair Debt Collection Practices Act.
- “Death won’t stop these debt collectors” (Minneapolis Star Tribune, September 22, 2010)
- “Paying the debts of a deceased relative: What you should know” (Minneapolis Star Tribune, September 22, 2010)