What happens to your debts after you die? Do your debts die with you, or will your family wind up getting harassed by creditors and debt collectors?
The answer is complicated, because when people die, their estate goes into probate, and the estate owes the debt. If there isn’t enough money in the estate, it typically goes unpaid. But there are exceptions to this rule. It all depends on the circumstances.
According to the Federal Trade Commission (FTC), family members usually don’t have to pay debts from their own assets. Also, family members are protected by the federal Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to try to collect a debt. However, collectors can contact and discuss the deceased person’s debts with that person’s spouse, parent(s) (if the deceased was a minor child), guardian, executor, or administrator.
So collection agencies may keep trying. The Ohio debt relief attorneys at Fesenmyer Cousino Weinzimmer can provide guidance about who is obligated to pay a deceased person’s debts and how to avoid having your family harassed.
Who Has the Authority to Pay Debts?
Ohio state law governs the handling of a deceased resident’s assets and liabilities. Ohio Revised Code §2117.25 Order in Which Debts to be Paid.
The person named in a will who is responsible for settling a deceased person’s affairs is called the executor. If there is no will, the court may appoint someone and give them the authority to settle the affairs. Executors should know the general legal guidelines on debts, whether there is enough money in the estate to pay a debt, and whether the debt is secured or unsecured.
Secured debts are backed by property such as a house, car or boat. After death, creditors can seize the property if the debt isn’t paid. If there is a mortgage on a house, the house can be foreclosed on unless a co-owner or the person who inherits the house takes over the payments. If there is an outstanding home-equity loan, the lender can force immediate repayment of the loan and may require sale of the house.
In the case of a vehicle, the lender can repossess the vehicle. However, a person who inherits the vehicle and wants to keep it can choose to take over the payments if the lender allows.
Co-Signors, Joint Accounts and Credit Cards
When you take out a credit card in your name, you are agreeing to repay whatever you borrow, and that obligation doesn’t extend to your family, even your spouse. However, this is not the case if someone else was jointly liable on the debt with you. Joint account holders are generally fully responsible for the entire debt, even if all the charges were made by only one of them. And a co-signer who guarantees the debt becomes liable for repayment if the debt is not satisfied out of the estate.
Authorized signers or additional cardholders on credit card accounts, however, are not liable, as they didn’t originally apply for the credit.
Co-signers of privately held student loans remain responsible, but federal student loans are discharged upon death.
In some cases, unsecured credit accounts may be covered by credit life insurance, which pays the outstanding balance in the event of the account holder’s death. Even if the debt is unsecured, Ohio law allows the creditor to file a claim against the estate.
Certain assets are protected from seizure. Life insurance policies, pension plans, and 401(k) plans cannot be used to settle the debts. In addition, any accounts designated as “transfer on death” (TOD) or “payable on death” (POD) are paid to beneficiaries, not to the estate or creditors. A joint account with right of survivorship will pass assets directly to the surviving owner and is protected from claims.
A trust is another way to pass on assets without going through probate court. The trust is a separate entity in which the owner may give specific instructions to a trustee on how to distribute assets and pay creditors, or it may allow the trustee to pay the debts as he sees fit. In general, Ohio law bars creditors from enforcing claims against trusts.
If you’re thinking of giving away assets, be aware that gifts given in anticipation of death may be challenged by creditors, who have the right to petition the probate court for reversal of any gifts made just before death.
In general, while most debt is personal and is not passed on to surviving family members, there are lots of details that can complicate the question. The experienced Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer understand these issues. We can provide the necessary counsel and guidance to help you get out of debt and resolve your financial issues.
Call Fesenmyer Cousino Weinzimmer at one of our office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) for a free consultation so we can determine what debt relief solutions are best for you.