How to handle debt when a spouse, close family member dies
Perhaps it was an extended illness. Or, maybe it was a sudden loss. Either way, the death of a spouse or close family member can be a shock to the system — emotionally, of course, but also financially.
For women, the experience can be particularly profound. Women are more likely to be left picking up the pieces. According to the U.S. Census Bureau, 34 percent of women age 65 and up are widows. For men of the same age, the total is just 14 percent.
What’s more, because women historically have earned less than men or may have taken time out of the workforce to raise children, they often have fewer financial resources. Though women are more likely to participate in workplace savings plans than men, according to Vanguard, men’s account balances are more than 50 percent larger because of those lower wages.
At CESI, we get calls from time to time from spouses or other individuals, who have lost loved ones and are struggling to determine who is owed payment, how to handle creditors and how to complete all of the required paperwork. At the same time, they are grappling with grief and the loss of a loved one.
The good news is there is hope. Just because a loved one has died, a spouse or family members aren’t necessarily expected to cover the deceased person’s debts. CESI’s counselors can provide more support and advice, but here’s a quick guide to get you started.
What is an “estate?”
An estate includes the money and property owned by the deceased person — and owed by him. This might include items such as clothes, furniture, jewelry, vehicles and property, along with retirement savings, pensions and life insurance. It also includes any debt, including credit cards, medical bills and mortgages.
If the deceased person had a will, the will’s executor is in charge of getting the estate’s affairs in order. If there is no will, the court typically appoints somebody to take care of matters.
Why do I need a certified copy of the death certificate and how do I get one?
Banks, financial institutions, mortgage companies and even email providers and social media sites will need you to provide a certified death certificate to verify that the person has died before any accounts are closed down or social media page is erased. Depending on the deceased person’s holdings and online activity, you could need a dozen or more death certificates.
A funeral director often helps relatives get death certificates. You also can order them from state or local vital records offices where the death occurred. The cost depends on the location, but they typically are between $10 and $20.
How is a debt paid off after death?
Debts don’t disappear after death. The deceased person’s estate must cover any obligations. If the estate’s holdings can’t pay off the debt, the bills, most often, go unpaid, according to the Federal Trade Commission.
Are spouses and heirs responsible for any debt payment?
Generally, no. But there are some cases when a spouse or heir could be responsible for the debt. Somebody who co-signed a loan for, for instance, a car or a house, may be responsible for the remaining payments.
A spouse also could be responsible for debt payment if she lives in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin, all community property states. In those states, just about anything acquired — including debt — during marriage is considered property of both spouses.
In some states, spouses may be required to pay certain kinds of debt, such as health care expenses, according to the Federal Trade Commission. Spouses also could be on the hook for debt payment if they were responsible for resolving the estate and didn’t adhere to specific state laws.
Can the deceased person’s creditors contact you?
Yes, but with some limits. In the United States, the Fair Debt Collection Practices Act protects consumers from debt collectors who use abusive, unfair or deceptive practices to collect a debt. It also protects relatives after a family member has died.
According to the Federal Trade Commission, a debt collector can contact a deceased person’s spouse; parents, if the person was a minor child; guardian; executor; administrator; and anybody who is authorized to pay off debts with assets from an estate.
Collectors also can contact third parties — such as a relative — to get the name, address and telephone number for the deceased person’s spouse, executor or another individual responsible for payment of the estate’s debts. But, they typically only can contact them once and can’t say anything about the debt.
You can insist that creditors stop calling you by sending a letter stating that they should not contact you again. After the letter is sent, the creditor can contact you one more time — to let you know they received the correspondence.
How do you handle creditors? What do you communicate to them?
If a creditor contacts you, ask them who they are, why they are calling and insist on any details about the account and alleged debt. The federal Consumer Financial Protection Bureau offers a great script and sample letter to use when answering a call from a creditor.
Just be wary of fraudsters posing as debt collectors. Scams are one reason why you should never give the caller personal information, including your social security number, address or banking information.
At the beginning of any process to close down an estate, it’s critical to get a full accounting of everything that the deceased person owned and owed, including any upcoming bills.
Search the person’s records for various banking and investment accounts. Check in with the person’s attorney or financial advisor, if he had one. And contact a trusted advisor to ensure the process, especially during a time of grief, is resolved quickly and efficiently.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.