Debt Collection – Paying Debts from Estate Assets

September 2, 2021

An executor is legally responsible for sorting out your estate’s finances, including ensuring debts and taxes are paid in a timely manner; ultimately, what funds remain are distributed to your beneficiaries as outlined in your will. As this person will most likely be a grieving family member or close friend, the last thing they will want to deal with is a debt collector calling them to pay an outstanding debt. At these times, it’s good for the executor to know their rights when a collector contacts them. 

Debt Obligations

Typically, when you pass on, your debts do not go away. Your estate will be responsible for paying any debt obligations; fortunately, by law, your beneficiaries do not have to pay your debts from their own money. If by chance your estate does not have the funds to cover the debt, these commitments may go unpaid. That being said, a spouse or partner could be held personally responsible for the debt if you live in a community property state, or if your state requires particular debts, like healthcare expenses, to be repaid. A beneficiary could also be responsible for any co-signed debt obligation, such as a loan.  

Executor Responsibility: Paying Debts from Estate Assets

An executor is the person you name in a will whose responsibility is to carry out your final wishes, as well as settle your estate’s affairs. If you haven’t created a will, do it now. Without a will, the state’s court may appoint an administrator, personal representative, or universal successor to settle the estate. Once you’ve created a will, upload a copy of the document to your HereToday Vault

Debt Collectors Rights 

In the U.S., laws protect beneficiaries and family members from debt collectors. Per the Federal Trade Commission’s (FTC) regarding debt collection “The FTC enforces the Fair Debt Collection Practices Act (FDCPA), which makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when they collect debts.” Learn more about FDCPA. However, under FDCPA, collectors can contact and discuss outstanding debts with the following members:

  • Executor
  • Administrator
  • Guardian
  • Spouse
  • Parents
    • Applicable if the deceased was a minor, which is considered under age 18

Please note, debt collectors only have the right to contact any other person with authority to pay debts from your estate’s assets. Collectors do not have the power to contact or discuss your debts with anyone else. 

Debt Collector’s Ability to Gather Information

A debt collector has the right to contact your relatives and other members to obtain the name, address, and telephone number of your spouse, executor, administrator, or any other person with the authority to pay the estate’s debts. Per the FTC Consumer Information, Debts and Deceased Relatives, “Collectors can usually only contact these relatives or other people one time to get this information, and they can’t discuss the details of the debt.” However, a collector has the authority to follow up with your family members for updated information; but rest assured, the collector cannot discuss the nature of the debt. 

Ceasing Communication with a Debt Collector

At any time, the executor can request a debt collector to stop contacting them. The executor must send a formal letter to the collection agency. It’s suggested the executor make a copy of the letter, send the original to the collector by certified mail, and purchase a return receipt so they can document the request. Please note, upon receipt of the request, the collector can only contact the executor to confirm receipt, or to inform them of the collector’s intent to take legal action, such as filing a lawsuit. Just because the collector has stopped communications with the executor, it does not mean the debt is forgiven. The debt remains and the collector has the right to collect from the estate.

Reporting an Abusive Debt Collector

If the executor feels a debt collector is acting inappropriately and breaking the law, there’s a couple of paths to consider. The executor can report the collector at the Federal Trade Commission’s Report Fraud site, or contact the estate’s state attorney general office. As many states have their own debt collection laws, which may vary from federal laws, it’s recommended the executor connect with the state attorney general’s office to learn the law applicable to your estate.

 

This page includes resource information found on the FTC Consumer Information website.

Disclaimer. HereToday is not a legal service. This content should not be taken as legal advice. Before drafting any legal document, please consult an attorney.

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