Thursday, June 19, 2014
More likely than not, if you have a will, it says something to the degree of, “pay my debts before you pay my heirs.” Thus, your executor or your personal representative must follow those instructions in accordance with state and federal law. Some family members get stuck with enormous tax bills and lingering legal battles that eat away at an inheritance. Although banks do not readily admit to the fact, lawyers say clients have more success in reducing credit card debts after a family member passes away. “Credit card companies will take settlements from the estates that they wouldn’t take from a living person.” Unlike a living person, when someone has passed away, there is no longer any risk that foregoing credit card bill payment will hurt his or her credit rating. Hence, card companies have less bargaining power and may be more amenable to compromise.
Additionally, an offer by the estate to pay two thirds or half of the balance avoids the need for card companies to deal with collection agencies. The federal Fair Debt Collection Practices Act, which prohibits debt collectors from using abusive, false or misleading tactics to collect a debt, applies to heirs as well as consumers.
Executors must follow guidelines as to how to go about paying creditors. However, if they pay heirs before the end of a creditor period and a new bill emerges, executors could be liable for money paid to heirs. To prevent any unauthorized charges, locate all the credit cards and cancel them as soon as possible. To make sure you have not overlooked any cards, contact the three major credit reporting bureaus (TransUnion, Equifax, and Experian), which allow the executor to get a free copy of the credit report. Other steps include getting mail forwarded or getting access to email accounts.
If a bill falls through the cracks, it is important to try to negotiate with credit card companies. However, “[W]e don’t want to encourage people or their family members to run up a credit card bill thinking that it dies with them . . . That could be in moral hazard.”
See Deborah Jacobs, How to Cope With Credit Card Bills After A Family Member Dies, Forbes, June 18, 2014.