How to deal with the credit card debt from family member that has passed away?

Question

My father recently passed away and had some considerable amount of debt on his credit cards. House and credit card were in the deceased’s name only. The state that is happening in is New Jersey.

In terms of monetary assets, he doesn't have any.

Right now, the credit card company is asking us to pay off his debt, otherwise it will go to his estate. They said they'll reduce amount owed if I pay it, but it wasn't by very much.

At the moment, my mother and I live in the house and I am looking to put the house under my name.

Do I pay off his debt?

Does putting the house under my name change anything?

Answer 1

Don't pay it, see a lawyer. Given your comment, it will depend on the jurisdiction on the passing of the house and the presence of a will or lack thereof. In some states all the assets will be inherited by your mom. Debts cannot be inherited; however, assets can be made to stand for debts.

This is a tricky situation that is state dependent.

In the end, with few assets and large credit card debt, the credit card companies are often left without payment. I would not pay the debt unless your lawyer specifically told you to do so.

Sorry for your loss.

Answer 2

First, when a debt collector says, "It's to your advantage to give me money now", I'd take that with a grain of salt. My ex-wife declared bankruptcy and when debt collectors couldn't find her, they somehow tracked me down and told me that I should tell her that it would be to her advantage to pay off this debt before the bankruptcy went through. That was total nonsense of course. The whole point of bankruptcy is to not have to pay the debt. Why would you pay it just before it was wiped off the books? (Now that I think of it, I'm surprised that they didn't tell me that I should pay her debts.)

As others have noted, this would be controlled by state law. But in general, when someone dies any debts are payed from the assets of the estate, and then whatever is left goes to the heirs. If nothing is left or the debts exceed the assets, then the heirs get nothing, but they don't have to pay somebody else's debts.

I don't see how you could "put the house under your name". If he left the house to you in his will, then after any debts are settled in accordance with state law, the house would transfer to you. But you can't just decide to put the house in your name outside of the legal inheritance process. If you could, then people could undermine a will at any time by just deciding to take an asset left to someone else and "put it in their name". Or as in this case, people could undermine the rights of creditors by transferring all assets to themselves before debts were paid. Even if there's some provision in your state for changing the name on a deed prior to probate to facilitate getting mortgages and taxes paid or whatever, I would be quite surprised if this allowed you to shelter assets from legitimate creditors. It would be a gaping loophole in inheritance law.

Frankly, if your father's debts are more than the value of his assets, including the value of the house, I suspect you will not be able to keep the house. It will be sold to pay off the creditors. I would certainly talk to a lawyer about this as there might be some provision in the law that you can take advantage of. I'll gladly yield on this point to anyone with specific knowledge of New Jersey inheritance law.

Answer 3

Debts do not inherit to the children. You are absolutely not liable for your parent's debt, in any way whatsoever. ** Collection agents will lie about this; tricking you is their job, and your job is to tell them Heck no, do I look like an idiot?

The Estate

When a person dies, all their personal assets (and debts) go to a fictitious entity called the Estate. This is a holder for the person's assets until they can be dispositioned finally.

The estate is managed by a living person, sometimes a company (law firm), called an Executor. Similar to a corporation which is shutting down business, the Executor's job is to act on behalf of the Estate, and in the Estate's best interest (not his own). For instance he can't decide, in his capacity as executor, to give all the estate's money to himself. He has to loyally and selflessly follow state law and any living-trust or wills that may be in place. This role is not for everyone.

You can't just decide "la la la, I'm going to live in their house now", that is squatting. The house is an asset and someone inherited that, as dictated by will, trust or state law. That has to be worked out legally. Once they inherit the house, you have to negotiate with them about living there.

If you want to live there now, negotiate to rent the house from the estate. This is an efficient way to funnel money into the estate for what I discuss later.**

Debts of the Estate

The Estate has assets, and it has debts. Some debts extinguish on the death of the natural person, e.g. student loans, depending on the contract and state law.

Did you know corporations are considered a "person"? (that's what Citizens United was all about.) So are estates - both are fictitious persons. The executor can act like a person in that sense.

Unsecured debt

If you have unsecured debt, how can a creditor motivate you to pay? They can annoy and harass you. They can burn your credit rating. Or they can sue you and try to take your assets - but suing is also expensive for them. This is not widely understood, but anyone at any time can go to their creditors and say

"Hey creditor, I'm not gonna pay you $10,000. Tough buffaloes. You can sue me, good luck with that. Or, I'll make you a deal. I'll offer you $2000 to settle this debt. What say you?

And you'll get one of two answers. Either "OK" or "Nice try, let's try $7000." If the latter, you start into the cycle of haggling, "3000." "6000." "4000." "5000. "Split the difference, $4500." "OK." This is always a one-time, lump sum, one-shot payoff, never partial payments. Creditors will try to convince you to make partial payments. Don't do it.

Anyone can do that at any time. Why don't living people do this every day?

• The creditor won't loan you any more money if you do
• It will burn your credit rating, so neither will anyone else
• It's immoral

How about an Estate? Estates are fictitious persons, they don't have a "morality", they have a fiduciary duty. Do they plan on borrowing any more money? Nope. Their credit rating is already 0. They owe no loyalty to USBank. Actually, the executor's fiduciary duty is to get the most possible money for the assets, and settle the debts for the least.

So I argue it's unethical to fail to haggle down this debt. If an executor is "not a haggler" or has a moral issue with shortchanging creditors, he is shortchanging the heirs, and he can be sued for that personally - because he has a fiduciary duty to the heirs, not Chase Bank. Like I say, the job is not for everyone.

The estate should also make sure to check the paperwork for any other way to escape the debt: does it extinguish on death? Is the debt time-barred? Can they really prove it's valid? Etc. It's not personal, it's business.

The estate should not make monthly payments (no credit rating to protect) and should not pay one dime to a creditor except for a one-shot final settlement.

Is it secured debt? Let them take the asset. (unless an heir really wants it).

Estate must still be settled

When a person dies with a lot of unsecured debt, it's often the case that they don't have a lot of cash lying around. The estate must sell off assets to raise the cash to settle with the creditors. Now here's where things get ugly with the house.

** The estate should try to raise money any other way, but it may have to sell the house to pay the creditors. For the people who would otherwise inherit the house, it may be in their best interest to pay off that debt.

Check with lawyers in your area, but it may also be possible for the estate to take a mortgage on the house, use the mortgage cash to pay off the estate's debts (still haggle!), and then bequeath the house-and-mortgage to the heirs. The mortgage lender would have to be on-board with all of this. Then, the heirs would owe the mortgage.

Good chance it would be a small mortgage on a big equity, e.g. a $20,000 mortgage on a $100,000 house. Banks love those.

Answer 4

Sorry for your loss.

Like others have said Debts cannot be inherited period (in the US). However, assets sometimes can be made to stand for debts.

In most cases, credit card debt has no collateral and thus the credit card companies will often either sell the debt to a debt collector or collections agency, sue you for it, or write it off. Collecting often takes a lot of time and money, thus usually the credit card companies just sell the debt, to a debt collector who tries to get you to pay up before the statute of limitations runs out. That said, some credit card companies will sue the debtor to obtain a judgement, but many don't. In your case, I wouldn't tell them of your loss, let em do their homework, and waste time. Don't give them any info,and consult with a lawyer regarding your father's estate and whether his credit card will even matter.

Often, unscrupulous debt collectors will say illegal things (per the FDCPA) to pressure anyone related to the debtor to pay. Don't cave in. Make sure you know your rights, and record all interactions/calls you have with them. You can sue them back for any FDCPA infractions, some attorneys might even take up such a case on contingency, i.e they get a portion of the FDCPA damages you collect. Don't pay even a penny. This often will extend or reset the statute of limitations time for the debt to be collectable. i.e Ex: If in your state, the statute of limitations for credit card debt is 3 years, and you pay them $0.01 on year 2, you just bought them 3 more years to be able to collect.

TL;DR: IANAL, most credit card debt has no collateral so don't pay or give any info to the debt collectors. Anytime you pay it extends the statute of limitations. Consult an attorney for the estate matters, and if the debt collectors get too aggressive, and record their calls, and sue them back!

Answer 5

First off, very sorry for your loss. I lost my father a few years ago and I know it can be tough.

My father also had a lot of credit card debt. They attempted to collect the debt from my mother, who was no longer on the account (for over a decade). It was just an attempt to recoup as much money as they could before dealing with a probate court.

As others have said, it depends on your state law. You will want to talk to a lawyer, figure out who is going to be the executor of the estate, and determine the next steps in starting to settle debts that your father had. If you want to take possession of the house, then you will likely need to work with the executor and perhaps purchase the house from the estate (which would then use the money to pay off debts).

Answer 6

Sorry for your loss. I am not a lawyer and this isn;t legal advice -- which I am not licensed to give. But I've had to deal with some debt situations of my own. I think the worst case scenario is the creditor can get a judgment, but that won't be against you unless you were a co-signor. The collectors are going to prey on your decency to make you feel like you should pay it, but you are under no legal obligation to do so.

If they file in court and then win a judgment, they may be able to collect on the assets of the estate. You mention no money but you mention a house. That is an asset with value, and putting it in your name isn't going to do much. You should see a lawyer on this, because it seems logical that they could collect on the value of the house at the time of the death, and even if it was willed to you it can still be attacked to pay the debt.

Here is a good write-up on NJ death and debt and whether it can be inherited by the adult children:

https://www.atrbklaw.com/bankruptcy-resources/83-articles/103-can-you-inherit-your-dead-parent-s-debts

Answer 7

You also might want to see what sort of documentation the credit card company has. Companies can get pretty lazy sometimes about recordkeeping; there have been cases where banks tried to foreclose on a property but weren't able to produce documents establishing the mortgage. With your father dead, is there anything other than the credit card company's word that the debt is valid?

Answer 8

First, if it is in any way a joint account, the debt usually goes to the surviving person. Assets in joint accounts usually have their own instructions on how to disperse the assets; for example, full joint bank accounts usually immediately go to the other name on the account and never become part of the estate. Non-cash assets will likely need to be converted to cash and a fair market valuation shown to the probate court, unless the debts can be paid without using them and they can be transferred to next of kin. If, after that, the deceased has any assets at all, there is usually (varies by state) a legally defined order in which debtor types must be paid. This is handled by probating the estate. There is a period during which you publish a death notice and then wait for debt claims and bills to arrive. Then pay as many as possible based on the priority, and inform the others the holder is deceased and the estate is empty. This sometimes needs to be approved by a judge if the assets are less than the debts. Then disperse remaining assets to next of kin. If there are no assets held by just the deceased, as you get bills you just send a certified copy of the death certificate, tell them there is no estate, then forget about them. A lawyer can really help in determining which need to be paid and to work through probate, which is not simple or cheap. But also note that you can negotiate and sometimes get them to accept less, if there are assets. When my mother died, the doctors treating her zeroed her accounts; the hospitals accepted a much reduced total, but the credit cards wanted 100%.