With the economy the way it has been the last several years, there have been an increasing number of retired citizens relying on credit cards to cover their monthly expenses.
This has increased the number of children who are left with credit card bills when their parents pass away. If you are contacted by a debt collector about your parent’s debt, make sure you understand your rights when dealing with a debt collector.
Know your rights
The good news is that you probably aren’t responsible for any unpaid debts of your deceased parents. One exception is if you are a joint account holder on an account. If you are a joint account holder, then you may be liable for that debt.
If you were not a joint account holder on the credit card account, then your parent’s estate may be responsible for the debt. It is important to know your rights, so that credit card companies or the collectors who they have sold debts off to, will not take advantage of you.
Figuring out if you owe a debt and dealing with debt collectors can be difficult. If you have been contacted by a debt collector in Minnesota, click here to contact a Minnesota consumer rights attorney. If you live in another state, click here to see a directory of consumer rights attorneys in your state.
Who gets paid
As reported by the New York Times, credit card companies often have to wait to receive their payments. This is because credit cards are unsecured debts. All debts that have collateral tied to the account, like mortgages and auto loans, will be paid first, often through the sale of the collateral. What’s left over after the payment of the secured debts is what will be available to cover the credit card debts.
If there isn’t enough money left to cover the debts, the remaining amount will be written off by the credit card company. How your parents set up their accounts, may determine if debts get paid.
Stephen Silverberg, former president of the National Academy of Elder Law Attorneys, has shared with the New York Times that P.O.D. (payable on death) and savings accounts set up “in trust” may be allocated toward the estate to pay off debts; IRA and other retirement accounts, on the other hand can’t be access by creditors to pay off debts.
John H. Langbein, author and Yale Law School professor of trust law, also shares that insurance typically is paid outside of a parent’s estate, making it untouchable by creditors.
What is the process
As outlined by the Credit CARD Act of 2009, credit card issuers must inform the executor of an estate in a timely manner about outstanding debt. The card issuers must also stop adding fees or penalties to the account when the estate is being settled.
According to Jean Setzfand, the director of financial security at AARP, the first step as the executor of your parent’s estate is to establish the ownership of the debts. “If there are no co-signers, really you want to distance yourself as much as possible from it,” Setzfand shared with the New York Times.
You can establish ownership by contacting the credit card companies and requesting a copy of the card and a statement. You can also be proactive and contact the creditors to cancel the accounts because the card holder has passed away. Be sure to state that you are working on settling the estate. This often will be a trigger for credit card companies to stop charging interest, decreasing the total amount that will be owed from your parent’s estate.
When you make a settlement with a credit card company, be sure to get a written record that the debt has been paid as agreed. This will prevent the company from selling any unpaid portion of the original debt to a collection agency or transferring it to another person’s name to try to collect additional funds. Again, if you have questions about the process, contact a local consumer rights attorney to help you finalize the process.
It is also recommended that you pay with money orders to settle the credit card debts. This will keep your bank account information private and decrease the chances that a company will try to violate the law and pursue you for any portion of the unpaid debt.
Daniela Baker is a social media advocate at the consumer credit card comparison website CreditDonkey. She is a mother of two and hopes her insights into credit card debt will help family members when settling estates.
(Photo: http://www.flickr.com/photos/scobleizer/5451685974)
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