Newland's Business Notes

Collecting the Debts of the Dead    

Volume 15 Issue 6 -- November/December 2011

Noh Whey believed that there was no way he could die early. Unfortunately, there was a way, and Noh Whey was killed in a traffic accident. At the time of Noh’s death, he had no assets and credit card debt of $15,000. His wife Freeda was not jointly liable for his credit card debt, nor were his children. In short, the only person liable for the credit debt of Noh Whey was himself until his insolvent estate became liable for his debts upon Noh’s death.

As often happens with unexpected deaths, Noh died intestate (meaning without a Will). In January/February 2009, we wrote a newsletter concerning situations in which unsuspecting administrators of insolvent estates may become unwittingly liable for tax debts of a decedent, but the concepts and special laws related to tax debt are not applicable to Noh’s credit card debt.

Even though Noh’s family members are not liable for any debts of his insolvent estate, an industry has sprung up around trying to collect  credit card debts, like those of Noh,  from his surviving family members.  The Wall Street Journal (WSJ) covered this in an article published December 3-4, 2011, entitled “For the Families of Some Debtors, Death Offers No Respite.”

Noh’s credit card debt was with a well-known  bank that we will call “Grabor.” As often happens in situations like this, the bank does not want to get its hands dirty in dealing with Noh’s survivors,  so Grabor hired a company (Hounder) that specializes in trying to collect debts from the estates and heirs of decedents.

The wording of one of the letters from such a debt collector called DCM that was received by a client of Newland & Associates states “it is the policy of Grabor to inform you that only the estate is responsible for any outstanding balances on this account. Please call our office toll-free . . . to discuss resolutions of this matter and the payment of this account.”

In an insolvent estate such as Noh’s, there is no way family members would be legally liable for Noh’s debts.  Most readers will observe the two sentences quoted above are mutually contradictory. But, according to the WSJ, it is the practice of companies like Hounder to continue to make calls to widows, such as Freeda, and other family members about the “resolution” of these problems. Often the collection company callers will talk about the moral or ethical considerations involved in the unpaid debt. They may even make statements to the effect of the survivors benefited from Noh’s use of the credit card.

These companies use extensive databases and contact as many members of a family as possible. It is undoubtedly a difficult situation for the surviving family members, and many of them may feel morally obligated for the debts even though technically they are not liable.

What if Noh had assets in his estate? If there is an estate with assets in it, then probate would be in order. To the extent there are assets in the estate of a decedent, such as Noh’s, there is an ordering process controlled by probate law which governs the paying of creditors.

Debt collectors like Hounder usually work on a commission basis. They collect a percentage of what is received from whoever is willing to step forward to pay part or all of the indebtedness of the decedent.   Frequently, a collector will readily discount the credit card debts of the decedent by a large percentage because the caller knows that family members are not liable for the credit card debts.  Persistence of the calling agency sometimes wears down survivors, and they agree to pay something just to stop the calls.

Is it possible that someone like Noh Whey could “game” the credit card system and run up debts prior to his/her death? In the case of an accidental death in an auto accident, as the example posed in this newsletter, the answer is almost certainly “no.” In some situations, however, such as some one who is terminally ill, it would be  possible to “run-up debt,” but according to the Wall Street Journal such “running-up of debt” by someone terminally ill is rare.

Certain debts like mortgages used to finance homes are subject to mortgages or security arrangements.  With regard to such debt, the home remains subject to the mortgage debt and is not released because of the death of Noh.  Expressed differently, if Noh and Freeda owned a home jointly, with rights of survivorship, Freeda may automatically become the sole owner of the home but the debt (the mortgage) continues to encumber the home.

It is important to remember, as the letter from DCM points out, the law makes it clear that the debts of the decedent are not those of other family members or interested parties. Nevertheless, the practice of continuing to call family members persists.  According to the Wall Street Journal, the debt collectors will persist in bringing up the question of the debt until a family member agrees to pay a discounted amount on the debts of the decedent.

If there is no way you feel you can get out from under such calls, a letter from an attorney to the debt collector may get the calls to stop. If you find yourself in that situation, call  Newland & Associates so that we can assist you with getting the calls stopped, but there are charges for such help.  


Copyright 2011

Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.

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