There is a lot of confusion surrounding what happens to a person’s debt when the person passes on, and the truth is that it varies depending on the type of debt and, in some cases, how much is owed.
Creditors may attempt to collect from the person’s estate during the probate process, when the person’s assets are distributed and his/her debts may be paid. And, in some cases, the person’s spouse and/or co-signer may become responsible for some remaining debt. Here is a brief review of what may happen to certain types of debt after a person passes:
- Mortgage debt – If two people are paying a mortgage and one passes, the surviving borrower becomes responsible for the debt. If the mortgage has no co-signer, no one becomes automatically responsible for the debt. If the deceased’s family wishes to keep the home, however, they must assume responsibility for the debt. If the family sells the home, they must continue paying the mortgage until the house is bought and any remaining debt must be paid when the house is sold.
- Credit card debt – If the deceased had a credit card account with a co-owner, the co-owner will be responsible for any remaining balance. Authorized users are not co-owners and therefore not responsible for the remaining balance. If the credit card is only in the deceased’s name, the credit card company may make a claim to be paid through his/her estate. If the deceased had no estate, will, or substantial assets, the debt may be left uncollected.
- Student loan debt – Federal student loans belonging to a deceased person, as well as PLUS loans taken out by parents of the deceased, will be discharged; this typically requires presenting a death certificate to the loan servicer. Private student loans, however, cannot be discharged, and the co-signer will become responsible for the remaining debt. If the deceased had no co-signer, the debt may be paid with assets from the estate.
- Car loan debt – If the deceased owed debt on a vehicle and there was no co-signer, the family may keep the vehicle and continue to pay what was owed, sell it to pay the debt, or allow the lender to repossess it. To maintain the loan, the surviving relative may need to qualify as a borrower or apply for a new loan for the vehicle.
- Medical debt – Medical debt belonging to the deceased is not discharged, except at the discretion of the health care provider or collection agency for relatively small amounts. For larger debts, the provider or collector may collect what is owed from the deceased’s estate. In the case of a deceased child, the parent/s become responsible for the debt.
Know Your Rights When it Comes to Debt Collectors
The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects consumers from third-party debt collectors. The FDCPA is a federal law that applies to every state. In other words, everyone is protected by the FDCPA. The FDCPA is essentially a laundry list of what debt collectors can and cannot do while collecting a debt, as well as things debt collectors must do while collecting a debt.
- Damages: if a collection agency violates any section of the FDCPA, the consumer is entitled to statutory damages up to $1,000.00.
- Attorney’s fees: The FDCPA has a fee-shift provision. This means, the collection agency pays the consumer’s attorney’s fees and costs.
- Debt that is covered by the FDCPA: only consumer debt, such as personal, family, and household debts. For example, money you owe on a personal credit card, an auto loan, a medical bill, or a utility bill. The FDCPA does not cover debts you incurred to run a business, or debts regarding unpaid taxes, or traffic tickets.
- The FDCPA only applies to 3rd-party debt collectors: the FDCPA defines a debt collector as any person who regularly collects, or attempts to collect, consumer debts for another person or institution. In short, only third-party debt collectors are bound by the FDCPA. That is, original creditors, such as credit card companies and banks are not bound by the FDCPA.
About Agruss Law Firm
Agruss Law Firm was founded in March 2012. Since then, they have quickly grown to include four lawyers, a paralegal, and several legal assistants. They are an entirely paperless operation, instead using digital case management software. The firm’s consumer rights practice helps consumers with debt collection harassment, robocalls, credit report problems, and deceptive business practices.
4809 N. Ravenswood Ave, Suite 419, Chicago, IL 60640
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