Collecting the Debts of the Dead
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.
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