How can debt collections affect our deceased relative’s estate?

On Behalf of | Mar 25, 2020 | Estate Planning |

It would be a rare event if your loved one passed away completely debt-free. If they died with a well-organized estate, you should have a pretty good idea of how much the decedent owes to whom. 

If your relative was a little less methodical, a barrage of debt collectors might catch you off guard, harassing your family for payments. Before you sling out your checkbook, take the time to understand what Inside Indiana Business has to say about debt liability: 

Mortgages, home equity and car loans 

The responsibility for secured debts after death passes to the surviving co-signers. If you have signed the loan, you may refinance or continue to make the payments as scheduled. The bank that holds the loan is not legally allowed to collect the full balance on the loan after a co-signer passes away. Additionally, these debts are self-secured with collateral that you can sell to satisfy the debt. 

Unsecured credit card debt 

If your relative was the only holder of an unsecured credit account, his or her estate is liable for the outstanding debt unless it cannot pay. In that case, debt collectors cannot hold you responsible for repayment unless you are a joint account holder. Note that a joint holder, or co-signer, is different than an authorized user. Creditors cannot collect the balance from an authorized cardholder. 

Private student loans 

Private student loan originators will almost always hold the co-signer responsible for the balance. Furthermore, there is no law preventing these lenders from calling in the entire balance if they wish. 

Federal student and PLUS program loans 

Institutions that offer federally-insured loans to students and lend through the PLUS program to parents can afford to be less stringent. Because the loans are backed by the government, lenders can forgive these debts if the borrowing student or parent passes away. 

Vehicle Leases 

After an auto lessee dies, the leasing agent generally demands full reimbursement for any remaining fees and payments. Although you might work out an approved payment schedule with the lessor, the decedent’s estate is liable for this debt.