Here's what you need to know about what happens to various debts you may have — while you're living, and even after you die.
Debts You Owe Right Now
With intergenerational households on the rise, it's not uncommon for aging parents or grandparents to live with adult children or grandchildren. None of us plans to burden our families financially. But you need to be aware of how your debt may — or may not — impact your loved ones right now and later, in the event of your death.
Generally speaking, while you are alive, your relatives are not responsible for paying any debts you may have incurred. But there can be many, many exceptions to this rule.
For instance, spouses may be responsible for each other's medical debts depending on the state they live in.
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Also, if a loved one cosigned for a debt, all bets are off. Once you don't pay what's owed, any individual who cosigned is legally obligated to pay whatever is due. That goes for credit card payments, student loans, car notes and mortgages.
To minimize exposing family members to potential financial woes, the National Academy of Elder Law Attorneys recommends that you use caution in cosigning loans, and in asking for anyone to cosign your debts.
Handling Debt Collectors
Even if you're not legally obligated to pay a loved one's debts, it doesn't mean you or your family members won't get calls from collection agencies saying you should pay the money.
If you find that a debt collection agency is harassing family members or breaking the law, write a "Cease and Desist" letter, or have an attorney write one on your behalf. This letter essentially demands that a creditor stop contacting you or your relatives.
If necessary, be prepared to file complaints against abusive collection agencies. Debt collectors aren't allowed to harass you or your family members about outstanding debts. They are also not allowed to call during certain times of day, and are prohibited from calling you at work if you indicate you are not allowed to receive calls.
Your relatives shouldn't have to deal with debt collectors trying to contact you. And under the Fair Debt Collection Practices Act (FDCPA), creditors aren't even supposed to talk to your relatives, friends or neighbors about your debts.
So what should you do if a debt collector calls demanding payment for a loved one's bills?
"My best advice is not to make any commitments on the telephone when a collection call comes in, but to check with a nonprofit credit counseling organization, experts at AARP, or even with the Federal Trade Commission, which has published excellent consumer alerts on the topic," says Etta Money, president of InCharge Debt Solutions, a nonprofit organization that provides free credit counseling to consumers.
In one of its consumer alerts, the FTC warns consumers not to give their own personal data — such as bank account information or Social Security numbers — to debt collectors who call claiming that a deceased relative owes money. Some callers could be scammers who've been trolling the obituaries and looking for opportunities to commit identity theft.
For debt collectors you believe are calling regarding legitimate debts, the FTC recommends simply referring the caller to the executor or administrator handling the deceased person's estate.
Debts That Remain After You Die
A lot of people wonder what happens to the outstanding obligations they had once they die. Do those debts simply disappear? Or could relatives be forced to pay those bills?
In the case of credit card debt and other obligations, rest assured that your family members aren't responsible for paying off your bills once you're gone.
"I always advise people to be informed in advance about any debt-related issues, particularly when it comes to potentially 'gray' areas like paying the debts of a deceased relative," says Money of InCharge Debt Solutions. "The fact is that you are not liable for the debts of any family member, with the exception of your spouse, and even in that case the obligations may be limited," she adds.
No one has an obligation to pay the debts of a deceased person who was not their spouse. And even a spouse's obligation may be limited under state probate law.
That's why the FTC advises consumers that if there isn't enough money from a deceased person's estate to cover certain debts, those debts "typically go unpaid" and family members are not responsible for them.
For more information about debt collection and the rights you and family members have under the FDCPA, see "Debt Collection FAQs: A Guide for Consumers."
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