Image: Woman with paperwork © Big Cheese Photo, Jupiterimages

Melissa and Brian Schultz of Grand Rapids, Mich., were at a floral shop, picking out an arrangement for their church's altar to celebrate their first wedding anniversary, two days away. As they mulled over the choices, Brian said, "My jaw hurts."

Ten minutes later he collapsed, dead of a massive heart attack. He was 37. At 34, Melissa was a widow while still a newlywed.

A little more than a week later, the phone calls from creditors began.

"They said, 'You're his wife. You have to pay this,'" Melissa, now 36, remembered. "Some of them kept calling and calling."

Debt collection after a death is a specialized and growing field, industry experts say, with some companies employing specially trained agents to handle these delicate calls. The task is complicated by the fact that many borrowers, like Brian, haven't prepared for their own deaths, and survivors may incorrectly believe that debt disappears at death.

"The debt doesn't go away, except under certain limited circumstances," said Dave Cherner, a corporate counsel for ACA International, a trade association for debt collectors.

But grieving family members say the calls are often persistent and intrusive -- and sometimes harassing. Collectors may insist the survivors have an obligation to pay the debts, when in fact they have no legal duty to do so.

Melissa Schultz was particularly distressed about repeated calls from collection agencies saying she had to pay her husband's federal student loans. The debt was part of the $30,000 in loans and credit card bills he'd left behind. Schultz said that the calls continued "for eight to 10 months" after Brian's death, and that the collectors also contacted Brian's sister and cousin.

In fact, federal student loan debt is legally erased when the borrower dies, said Jane Glickman, a spokeswoman for the U.S. Department of Education. The department contracts with private companies to collect overdue student loan debt, but those collectors are supposed to stop their efforts once survivors send a death certificate to the loan holder or, in the case of Perkins Loans, to the school the borrower attended. (Schultz said that she had filed the appropriate paperwork and that her attorney had called the collection agency, but the calls continued.)

In general, survivors are on the hook for debts only when:

  • They are joint account holders.
  • They co-signed for a loan with the deceased.
  • They live in a community property state where debts incurred during marriage may be considered joint obligations, even if they're only in the name of the deceased.

Otherwise, debts are supposed to be paid by the estate, if there's enough money left over to cover the bills after the "final expenses," such as funeral costs, are paid. And the definition of what constitutes an estate is more limited than what many people imagine.

Liz Weston

Liz Weston

Schultz, for example, was named the beneficiary of her husband's 401k plan, pension and life insurance policy. That money passed to her outside her husband's estate and couldn't be claimed by creditors.

Initially, she said, "I had no idea if I would have to use that money to pay Brian's bills . . . but I'd had a friend pass away from cancer and watched what happened to her family afterward, so I knew I shouldn't just fall over and pay (the creditors) from the life insurance."

Schultz said she had recently dug herself out of debt incurred in her 20s and didn't realize the extent of her husband's debt until he died. She said she wanted to do the right thing but didn't want to be saddled with new debts when she'd had no role in incurring those obligations.

"I was just trying to figure out how to get to the next day," Schultz said. "Trying to deal with all of this was just too much."

After spending a few sleepless nights attempting to research Michigan estate law on her own, Schultz realized she needed help and hired a probate attorney. The attorney advised her to tell the collection agencies that Brian was dead and, if they had any questions, they could call her attorney.

Some complied with her requests, she said, while others, including the student loan collectors, persisted in calling. Even today, 19 months after Brian's death (and also after the estate was finally closed), Bank of America still sends her bills in Brian's name for the $22,000 second mortgage he owed on a now-foreclosed property.

"They won't acknowledge he's deceased," she said. "I've sent the death certificate I don't know how many times."

The Federal Trade Commission gets more complaints about debt collection than any other industry. While the FTC doesn't break out death-related collections in its annual report (.pdf file), an FTC spokeswoman said those complaints are probably included in two of the most reported violations of the Fair Debt Collection Practices Act: collectors making repeated calls to third parties (21.8% of all collection-related complaints) or revealing the existence of a debt to a third party (12.4%).

"It's more and more of a problem," said credit expert Gerri Detweiler, who blogs at Credit.com. "It's partly because of the economy and the fact that people have more debt, including increasing numbers of seniors, plus you have the fact that debt collectors and debt buyers are more aggressive."

Debt collectors and consumer advocates are locked in a tug-of-war over proposed changes to the Fair Debt Collection Practices Act that would allow collectors to discuss debts with people who have the authority to pay those bills, even if those people aren't formally named as executors or administrators of estates.

Current rules prohibit collectors from mentioning the debt to anyone other than executors or administrators.

Debt collectors say a change is needed, because so many people die without wills or estate plans that name executors or administrators. States have different rules for how estates can be administered and what the administrators are called. Also, some families divvy up a dead person's estate extrajudicially -- without probate or other court involvement -- so creditors don't get a chance to make their claims.

Click here to become a fan of MSN Money on Facebook

But consumer advocates say some collectors already ignore current law. Expanding the list of people they're allowed to talk to about the debt will result in a flood of, as the Privacy Rights Clearinghouse put it in a letter to the FTC, "unwarranted, invasive questions and unwarranted revelations of private details about a deceased's affairs . . . an aggressive, widespread inquisition of grieving survivors, distant relatives, friends, or anyone who may have known the deceased."

The FTC hasn't decided what to do yet. In the meantime, here's what you should do when a loved one dies with debts:

  • Get clear on your obligations. If you're a spouse or a joint account holder, you'll want good advice about what you owe after a death. Hiring an attorney may be expensive -- Schultz paid hers about $6,000 -- but you may be able to get your questions answered via a one-time session with a bankruptcy attorney, who will know your state's laws about credit and debt.
  • Take good notes. If collectors call, provide them with contact information for the person administering the estate. If that's you, then you'll want to record the name of the collection agency and the original creditor, with contact information for both, along with when the debt was incurred and what names are on the account. Ask the caller to send proof the deceased person owed the debt. If you're not the administrator and don't want to be bothered again, follow up with a "cease contact" letter -- sent certified mail, return receipt requested -- to the collector. Any subsequent calls could be violations of fair debt collection laws, and you might be able to sue.
  • Don't skip probate. If your loved one died without a will, think twice about avoiding the court process known as probate -- doing so can be a shortsighted way to save money. Probate limits how long creditors have to make a claim against the estate, typically to a four-month window. After that, they're out of luck. Most states have informal or simplified probate procedures to handle small estates. For help, read Nolo Press' "The Executor's Guide: Settling a Loved One's Estate or Trust" by attorney Mary Randolph.
  • If you're in charge, get legal help. If you're named as an executor or administrator in a will or other estate plan, you can be held personally responsible for any mistakes -- including being sued by disgruntled creditors if you mess up. The bills for this legal help can typically be paid from the estate; if the estate is insolvent, it may be worth paying for this help out of your own pocket to avoid problems later.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.