I’ve heard people say ‘Your debts die with you.’
Of course one’s estate is responsible for paying the debts of the deceased. But what if there is no estate? What if the estate is insufficient? Is it true that creditors are just out of luck? (i.e., survivors are not responsible for paying their relatives debts?)
When my father died, he left quite a bit of debt, but my mother had divorced him just months prior to his death, and his debts did indeed die with him since he had no assets to speak of. She would have been on the hook for his debts if she had not had the divorce finalized.
On a ranty note, I like to think there is a special place in hell for the banks who tried to bully my mom into paying his debts, in spite of her having legally cut all financial ties with him just months prior to his death. She got legal advice from the lawyer we had advising us on his estate, and got the banks to leave her alone, but there is no way she should have HAD to do that. :mad:
Pretty much, yes, in the U.S. at least, your debts die with you.
Creditors are entitled to your estate. If the estate is insufficient, it gets sorted out in probate. I hope others more knowledgeable than I can chime in on how this works.
I have heard that some unscrupulous collection bureaus will call relatives of the deceased and attempt to collect 
Not just collection agencies - stories are legion of banks, credit unions, even utility companies trying to guilt surviving relatives into paying off debts owed by the recently enstiffened.
A bank tried for years to get me to pay credit card debt of my deceased parents they didn’t even owe. They’d been contending with it for years before they died. My dad’s name was the same as mine though to be fair. And a lot of times this stuff is just on computer automatic, and/or drones at the companies just not stopping to (or being allowed to) think. It’s not necessarily guys in top hats twirling their mustaches.
Are there generally rules or laws against trying to shift all a couple/family’s debt onto a terminally ill person while shifting assets the other way?
I expect most people wouldn’t try but if they did…
Why should it be surprising that debt disappears on death, if assets don’t cover debts? The same thing happens to debt in bankruptcy, the only difference is the ability to start over.
I know for bankruptcy, there’s a rule about “transactions in anticipation of bankruptcy”. Any transactions taken before filing (usually in the previous 6 months) that appear designed to shelter assets or give one creditor a special deal, can be reversed by the court. (I.e. I sell you my expensive car for $1 or give cousin Lulu a cash payout of $130,000.) Plus if any transaction involves someone getting a better deal than one of the heirs, there’s the option of claiming undue influence as a means of contesting the will…
(When my grandma died at 95, my dad and uncle found that she’d sold houses a little earlier to the other uncle for cheap, to avoid high death duties that Britain imposed. They were boiling mad, talked to a lawyer, but in the end there was nothing they could do… Nothing brings out the sibling rivalry like a good inheritance fight.)
Yes, it’s called ‘fraudulent conveyance’ and generally speaking, the assets will be seized anyway. Typically, there is a time period involved beyond which it’s hard to prove that it’s fraudulent. Of course, they have to actually prove that it was fraudulent and actually realize that such a transfer occurred, so it could theoretically work, but if Grandma Edna has two months to live and suddenly her bank accounts all end up in Junior’s name, they’re going to catch that. If it’s worth more than 25000 dollars (give or take, I can’t remember the exact number for this year) there will also be tax implications.
I grew up without a father- my parents had divorced, and he ceased to be a part of my life within a few years. As an adult, though, I decided to track him down. I met him just once, and decided that I really didn’t like him.
A couple of years later, he died. He had no estate to speak of, and I was the only descendant anyone could find. A week or so after his death, I got a call from one of his creditors, who expressed his condolences and asked me, by the way, how I planned on handling his outstanding debt to them of about two thousand dollars.
I laughed, and said, “You had more of a relationship with him than I did. Don’t call me again.”
I never heard anything more about about it.
As an aside, I did one of those “Does anyone owe me money” queries, and found out that some company in Texas owed him about $1500. I’d try to claim it, but I would have to prove that he’s dead and that I’m his son… both of which are too much trouble for me to go through.
Already answered pretty well.
Also, note that it’s often hard to “shift” debt. Like, if A owes B a debt, there’s not generally a process by which some third party C can assume that debt without B’s agreement.
Of course, C, the soon-to-be-deceased, can go take out a loan somewhere else from D, then give A the money to pay back B. If C does so without the intention of paying it back, that’s potentially criminal fraud. Of course, C will be conviction-proof soon, but if A was involved in the planning, that’s bad news for A…
If assets are seized, is that limited to the collateral associated with a loan? Like I can see a lender repossessing a car or foreclosing on a house, but what about credit card people? Can they seize what they believe to be my sofa & TV? Or would the be able to dip into my IRA (in which case do THEY pay the penalty or do my survivors?)
Let’s say I’ve got an embarrassingly high cumulative credit card limit (I get 'em but tend to not use 'em–think I could dig a $75,000 hole if I wanted to). If I get a death sentence from my doctor, what’s to stop me getting massive cash advances and then doling the money to family members, or better yet unrelatives with no interest in my estate–paying off cars and student loans and such? It’d be plausible to assert I just went bonkers and had a cash holiday at the beach. Asking for a friend.
If they sue you, they can attach whatever assets are allowed in your jurisdiction, which potentially means seizing your bank accounts, garnishing wages, or seizing property.
As above, it would be fraudulent conveyance. If the creditors find out what you did, they can go after your relatives in order to settle the estate. Every jurisdiction has different lookback periods for unwinding this stuff, often four years.
“Unscrupulous collection bureaus”? Isn’t that redundant? Is there any other kind?
And they will often tell you that you are responsible for debts that you legally aren’t.
My dad died decades ago, but my mother continued to use credit in his name for decades after (it was a lot easier back then), and as long as the bills were paid, creditors didn’t seem to care if the card holder was deceased. Then Mom died, and my uncle used some of her credit cards – in Dad’s name, remember – to pay off estate closing expenses. But when the estate was done, he must have thought, “that was easy,” and continued to use the same cards. That went on for years without my knowledge – again, the bills were paid, so no one cared that the original cardholder was deceased, his wife was deceased, and the current card user’s name wasn’t on the card.
Then the uncle died, and left behind a few bills. His estate was probated, but no one knew about my Dad’s credit cards, so the estate was closed. Years later, creditors tried to collect from me since I was the closest living relative to the original card holder and search engines tried to connect us. “Really? You think I am responsible for debts of someone else who died 60 years ago?”
There must be a lot of suckers out there that fall for this tactic, or they wouldn’t try it.
Run of the mill credit card debt is unsecured. They can’t repossess squat.
When a person with credit card debt dies, the estate is supposed to pay what it can back. But sometimes this doesn’t go as planned. The executor doesn’t know about the debt, just ignores it or whatever. And the estate closes before the credit card company finds out. Usually what happens then is the credit card company makes a lame attempt to collect from someone, anyone. Then they sell it off and those people try harder, etc.
But note that if you have $50k in CC debt and have a house worth something that’s going to your heirs, the CC company can force the house to be sold to get their money. Not the same as repossession but still not fun.
Normally, yes. Like a car loan is secured by the car; if you fail to make payments (because you died) they can repossess the car. Maybe it’ll be worth as much as the outstanding loan.
But a lawsuit i different. If a creditor sues the estate, and wins, the judge can give them rights to any assets of the estate, not just the car.
Also, many of the less reputable loaners (car title loan places, for example) are writing into their contracts that the loan is secured by not only the car, but also by other assets of the debtor (usually in complicated, unclear fine-print language, and without explaining it to the debtor). But if the contract is signed, then it rules, and will usually be upheld by courts.
Why should they be? Provide a justification for this alternative. :dubious:
They can’t re-possess it, since they never possessed it in the first place. But they can potentially seize it if they sue you and win a judgment. Unsecured creditors stand in line behind anyone with a lien on your property, but they can still get stuff that’s left over.
My sister was the executrix of the estates of our mother, an aunt and an uncle. In all three cases, the utility companies just blew them off, and told her that “we don’t bother going after the families for those kinds of bills”.