Estate Planning

Meet the Newest Frontier in Debt Collecting: The Dead

By Hull & Hull LLP

When someone dies, they generally don't get to take their debts to the grave.  Outstanding debts, such as bills and loans, remain just that…outstanding.  And just because the debtor is now gone, does not mean the creditors are going to be forgiving. 

Sometimes, the repayment of debts happens quickly and easily:  the debts are easy to identify; the deceased's assets are sufficient to pay them; and there is someone with the authority to access the funds necessary to make the payments (i.e. an executor). 

However, when repayment doesn't happen, creditors often come to collect.  A recent article in the New York Times, You're Dead?  That Won't Stop the Debt Collector, looks at what the paper refers to as 'the newest frontier of debt collecting' – finding some way of collecting debts from the dead.  While this might mean going after a deceased's assets, it also includes contacting next of kin and asking whether they'd mind paying up on the deceased's behalf.  

Something I found interesting about the article was the degree to which next of kin believed that they were obligated to pay the deceased's debts and the fact the collection agents weren't too quick to dissuade them from that belief.

Generally speaking, next of kin do not become personally liable for debts on the death of a relative; the deceased (through his/her assets) is solely liable for those debts and in situations where the assets remaining are insufficient to pay the debts, the estate will be insolvent – family members will not be called on to 'kick in' to pay outstanding liabilities.    

However, something to remember is that a deceased person's debts are, along with funeral and testamentary expenses, a first charge on his/her assets; the debts must be paid before the beneficiaries get paid, so to speak.  So, if beneficiaries have received their share and the creditors have not, the creditors might be able to go after the assets that have been inherited.

Have a great day!

Megan F. Connolly   

Full post as published by Toronto Estate Law Blog on March 16, 2009 (boomark / email).