A column by Margaret H. Johnson ACE, RQIC, a thought leader in the field of credit education and debt management. She offers 100% confidential and unbiased credit counseling and debt consolidation services. If you are a woman in debt, speak with Women and Money first. We specialize in helping women with their personal and business finance.
Inherited Debts or Debts after Death
No Way! Show me my signature.
What if someone dies, can they leave their debts to you? The short answer is no.
Debts do not transfer by virtue of marriage or death – not without your signature.
Herb and Donna contacted Solutions™ Credit Counselling to discuss Herb parents’ debt load. Donna had heard that when parents die, their kids inherit their debts and are responsible for paying them. Seeing as Herb’s parents were divorced several years ago and his mother had now remarried, Donna was worried that they might also be held responsible for the debts that were being created by Herbs new stepfather. Herb is also worried about his mother and her financial responsibility to the new debts. Herb and Donna are concerned for their own financial safety and that of their children.
As our population ages this is a growing concern for both debtors and credit grantors.
So what does happen to the debts when someone dies?
Well, that depends on if there is any money in the estate to pay the creditors and it also may depend on the creditor that the debt is owed to. Each credit grantor has their own set of rules and regulations to follow as well as the fact that there are laws in place to protect survivors.
Some creditors may try to go after the spouse or family members of the deceased person. However, most creditors will try to collect from the estate first. If the debt is joint the survivor will be required to pay the balance of the account. So if Herb's mom has signed for any of the new debts she will have to pay for them in the event of her husband's death, but only if she signed for them.
Credit card insurance?
In some cases there may be an insurance plan to cover the remaining debt. Check to see if the creditor has an insurance protection plan that the deceased may have paid into. If you are paying insurance premiums on a credit guard insurance plan – make sure that you actually qualify for the coverage. Just because you are paying the premiums does not mean you have coverage.
Recently I encountered several clients that were paying credit insurance plans. These plans would never pay out in the event of their death because the clients were past the age of the insurance protection. But no one from the insurance plan had bothered to notify these clients to let them know they should cancel the premiums. They just kept billing the credit card each month with no regard for the actual coverage of the client.
So be careful – read the fine print.
If there is no money in the estate to pay the debt and if the debt is only in the name of the deceased person, the credit grantor will be left with no option but to write off the debt as uncollectible. If you are contacted by a creditor, be prepared to supply the creditor with documents proving there is no estate and that there is no ability to pay the debt. However, it is always recommended that you speak to a professional before taking any action.
Typically a will has control over the financial affairs of a deceased person. However, a will can only distribute assets, not debts. But, before any money can be distributed to heirs, all the proven debts must be paid. If there are not enough cash assets to retire the debt load, some things may be sold to pay the proven debts. After the debts are paid, the remaining assets are distributed amongst the beneficiaries.
If you are contacted by a creditor to pay a debt that you do not believe you are responsible for, request the creditor to send you a copy of your signature on the contract.
If you make a payment on a debt, a case could be made that you have accepted responsibility for the debt and you could find yourself in more trouble – in such a case always ask a professional.
Know your rights
- It is very important to note that you are only responsible to pay for debts that you have contractually created.
- No one can leave their debts to you - in fact they can’t even leave their debts to their spouse.
- Unless you have signed for the debt, it is not your debt
So the moral of the story is, as usual: Read your documents and know your rights.
Remember, if you are experiencing financial difficulties do not wait. Speak to a professional today!
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