7/13/2011 3:11 PM ET|
Stuck with the departed's debts?
Collection agents may tell you otherwise, but you might not be responsible for the bill. Before you pay, find out if the debt is real and whether you're on the hook.
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.
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."
VIDEO ON MSN MONEY
Both of my elderly parent died in 2005. Countrywide Mortgage called EVERY DAY for almost a year after Mom died to demand payment on their mortgage. I had some nitwit there tell me that I should pay for my parents' mortgage because they would want me to.
Of course Countrywide wasn't the only culprit. Toyota Acceptance Corporation called EVERY DAY demanding payment on my Mother's leased car. This continued for over 6 months after we finally convinced them to come and pick up her car. The credit card company my father's medications were charged to continued to send threatening mail to me insisting that I owed the money to them. No, and no.
I had a collection agency try to get me to pay a maxed out credit card that my husband opened after we divorced. My signature on the account was forged (by new girlfriend). I promtly informed them that if they were not correct and pursued me, a lawsuit was in their future. Case closed.
Death of the inidividual or marriage does not phase the scumbags.
This is a little different however, my dad received a refund from the insurance company from the health insurance premium that he had paid for my mother. The refund was from the premium they had prepaid and she passed away before it was all used up. He received the refund in the form of a check. As follows- Pay to the order of the Estate of (her name). He went to the drive thru of the small town bank he banks at and the woman said that my dad could not endorse the check that he would need my mom to sign it. He was upset and said she was deceased and the woman insisted that he take the check to her to sign. He then asked if anyone else was available to talk to and she said "Sir, you just need to go back home and have your wife sign the check" He finally got mad, and said "she is dead", the woman behind the window finally said, "well ,I suppose then I will cash it this one time" It was a $40 check. Further more it was made out to the "estate" of. He got his chance to vent however, he was at the bank the Monday morning to visit with the president of the bank (who was also a friend of his) Needles to say I do not think she was employed much longer at that bank.
I have to respond to Tennessee Gamer's comment. I am a bankruptcy attorney (which is federal law and not state law so the relevant statute does not change from state to state) and I have never heard of such a thing. You cannot just request a "Meeting of Creditors" without filing a bankruptcy case. The meeting of creditors is required after you file bankruptcy by Section 341 of the U.S. Bankruptcy Code. If in fact his attorney suggested that he proceed in some way similar to what he describes, then I am certain that this was not a bankruptcy procedure. Could it be some sort of local mediation or debt settlement program? Yes, I guess, but what he describes does not make any sense. If Tennessee Gamer wants to send me the name of his attorney so that I can call him and find out what exactly he suggested that he do in that state then please send me the address but I think that his description cannot be accurate. As for the topic at hand, many collection workers are completely unscrupulous and they are instructed to act in ways that most people would find unconscionable. I have had many clients tell me stories of such demand s from collection agencies after they had family members die. It is a shame, but people, when in doubt, contact an attorney (and a good one). I can tell you from personal experience that most really good attorneys (and this includes the really expensive ones) will give you a free consultation either automatically or if you ask for one. If they don't invite you into their office to talk to you for free they will probably at least speak ot you over the phone for a few moments for free. Just call someone and tell their staff what you need help with and that you are potentially interested in hiring the attorney to help you with the problem.. Consult with somebody in private practice or with your local Pro Bono Legal Services program (call your State Bar Association for their information) or with "Public Counsel "if you need legal help. There are lots of resources out there for free legal services such as Public Counsel) that you can avail yourselves of. Don't make decisions potentially involving large amounts of money without legal advice if you are unsure as to your obligations.
Death of a marriage: my brother in law moved in with us during his divorce, and stayed a year and a half. His ex-wife had run up many credit cards to the max and they had refied their house twice to pay off the debts, so when they divorced they had no assets other than their house which was maxed out, and they had another $80k in credit card debt. They entered payment plans, but she opened new cards in his name AFTER their divorce, forging his signature. He was a long haul trucker. She had her phone number unlisted. Debt collectors called ME every day, insisting I was his exwife. One was Chase bank, which apparently had loans and cards for her. I have had a visa with Chase for decades, finally I asked for the caller's extension, then immediately called the number on my card and that extension- to make sure I was really talking to someone at the bank. Then I gave that person my credit card #, and id info to prove who I was. The calls stopped immediately.
But get this- years later we started getting a lot of daily debt collectors calls for someone we didn't even know, who apparently filled out OUR phone number on store credit applications! The stores must never have checked his info until he didn't pay his bills. No amount of telling those people we didn't know him helped. Turned out he was a teenager whose Mom had rented a house a mile or so away from us several years earlier for a brief period. Finally we called the phone co. and told them we were being harrassed. Verizon told us to call them immediately after one of the calls, which we did, and that was the end of the calls.
Whatever the case, an insurance policy against the death of a spouse/partner is so important. Just get it done.
That aside, the story is one of the better, most useful, articles that I have recently had opportunity to read.
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