Settling a Deceased Person’s Debts – Did you receive a bill addressed to a deceased loved one? Don’t ignore it — it’ll come again and again. What are the rules about paying a deceased relative’s debts, and what rights do you have?

By law, family members don’t have to pay the deceased relative’s debts from their own pockets. If there isn’t enough money in the estate to cover the debt, it usually goes unpaid. However, there are exceptions that may make you personally responsible for the debt. For example, those who cosigned a car loan may be responsible for the rest of that loan. Similarly, a deceased person’s spouse is responsible for the final health care expenses in certain states.

Who is responsible for what?

Even if the family is not financially responsible, however, someone has to address the issue of debts. If you’re an executor, you must see to it that the estate settles all debts. If there’s no will, the court may appoint an administrator to settle the estate’s affairs, depending on state law.

Normally, the executor or administrator can pay out inheritances to any heirs only once the debts are paid off, but there are exceptions. The deceased’s assets are either exempt or nonexempt. Exempt assets can’t be liquidated to cover debts. Although the list of assets that qualify as exempt varies by state, the two most common entries are retirement savings and life insurance policies. These can be distributed to beneficiaries without regard to debts.

Depending on the exempt status, the size of the estate and the amount owed, debt collectors may come calling for their piece of the pie. Fortunately, the law protects family members from abusive, unfair or deceptive collectors. According to the Fair Debt Collections Act, collectors can contact and discuss outstanding debts with the deceased’s spouse, their parents or guardian if the deceased was a minor, and the executor and/or administrator of the estate — that is, anyone with the power to pay debts with assets from the deceased’s estate. Debt collectors may not discuss the debts of a deceased person with anyone else.

Even if you have the power to pay a deceased’s debt, the law says you can stop a collection agency from contacting you. Send a letter to the collector — a phone call doesn’t do it — to tell the collector that you don’t want to be contacted again. Copy the letter, send the original by certified mail, and keep the return receipt to document when the collector received the letter.

Once the letter is received, the agency can only contact you to:

Confirm it will stop contacting you.
Tell you if it plans to take specific action, like filing a lawsuit.

But even if you stop collectors from communicating with you, the debt doesn’t go away, and they will keep trying to collect. However, if you think a debt collector is breaking the law, you can report any problems to the Federal Trade Commission at ReportFraud.ftc.gov and/or to your state attorney general.

States have debt collection laws, too. Contact your state attorney general’s office to help you understand your rights under your state’s law.

This is just a general overview. There are more rules about exempt assets and the estate’s ability or requirement to settle certain debts, and the heirs’ or executors’ responsibilities. Be sure to consult legal counsel.

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