Debt Collection After Death: What Happens to Your Debts When You Pass Away?
Debt and death are both parts of life. But what happens when someone who owes debt passes away? How does debt collection after death work? Usually, when someone dies, their estate satisfies outstanding debts. If the estate does not include enough property, the debt usually cannot be collected. Sometimes, however, debt is shared. If you leave shared debt behind, your loved ones may end up with the bill.
If you are concerned about your loved ones dealing with your debts after you die or are working on handling debt after a loved one’s death, contact the Mills & Anderson Law Group for assistance. For those in the planning phase, we can help you create an estate plan to minimize the risk of your loved ones being left to deal with your debts after you pass on. For those in the responding stage, we can help you manage the debt a loved one left behind, including helping determine whether you or anyone else can be required to pay.
What Is the Legal Process for Debts After Death?
When a person dies, their debts and assets go through the probate process, where your personal representative manages your estate.
Notification
Your personal representative must notify your creditors about your death. Creditors then have 30 or 90 days, depending on the method of notification, to file a claim. Generally, failing to file extinguishes the debt forever. However, a creditor who did not receive notice can file until the estate closes.
The personal representative examines the proof creditors provide to determine whether to allow or reject their claims. After the personal representative responds to all claims, they disperse your estate.
Distribution
Nevada law sets asset distribution in the following order:
- 1. Estate administration expenses,
- 2. Funeral expenses,
- 3. Final medical expenses,
- 4. Family allowance,
- 5. Debts given preference under U.S. law,
- 6. Medicaid-related debt,
- 7. Wages owed up to $600 for work done in the last 3 months,
- 8. Judgments and mortgages in chronological order, and
- 9. All others owed by the estate.
A judge may set aside a family allowance for the surviving spouse and children if the estate would not otherwise include enough property to provide for them. Federal debt preferences in the U.S. Code often relate to recently filed bankruptcy cases, but outstanding taxes may fall into this category as well.
When your estate does not include enough assets to satisfy your debts, you follow the preferences set by law. The judge can assign a family allowance before assets are distributed to creditors with valid claims.
Which Debts Survive Death?
While most debts should be extinguished through estate management, there are some exceptions, including:
- Co-signers on loans,
- Joint credit card account holders, and
- Community property.
You likely know who your co-signers and joint credit holders are, but Nevada’s community property regime can take some off guard.
Community Property
Under Nevada law, all property you acquire during marriage is community property that each spouse is entitled to an equal share of, with few exceptions. When your spouse dies, you take sole ownership over one-half of your community property. The other half of your shared property can be used to satisfy your deceased spouse’s debts.
Consider an example where one spouse is the sole earner. The spouses have equal entitlement to all earnings. If the non-earning spouse dies with outstanding debts, half of the spouses’ shared finances can be taken to pay off the deceased spouse’s debts, despite all income having been earned by the survivor.
Creditor-Shielded Property
Thankfully, not all community property is within reach. Along with the family allowance, the biggest exception is declaring a homestead, which you do by filing with your local county clerk. If you declare a homestead before your spouse dies, the property passes to the surviving spouse as sole property not reachable by creditors.
If you do not declare a homestead, you can request the court set your home aside after your spouse dies. However, the court can only set aside the homestead for up to the lifetime of the surviving spouse. When the surviving spouse passes away, they cannot pass the property on.
Additionally, a surviving spouse and minor children are entitled to keep most of the deceased spouse’s personal property and household furniture.
What Can You Do If Debt Collectors Contact You?
The federal Fair Debt Collection Practices Act (FDCPA) covers circumstances where debt is transferred from the original lender to a debt collector. Because debt collection agencies have a history of predatory practices, the FDCPA greatly curtails what debt collectors can do.
When and Who Debt Collectors Can Contact
If you hold the debt, debt collectors may not harass or mislead you and cannot contact you outside 8:00 AM to 9:00 PM. You can also declare hours off-limits, like work hours, or tell a debt collector to stop contacting you or to only communicate with your attorney. If debt collectors violate these rules, you can submit a complaint to the state or federal government.
Debt collectors are rarely allowed to contact anyone other than the debt holder. However, they can contact the debt holder’s personal representative and surviving spouse to attempt debt collection after death. If they do, you are entitled to the same protections. You can limit the hours collectors can contact you, forbid them from contacting you at all, and report them to the government.
Debt Validation and Disputes
You are entitled to ask any debt collectors to prove the validity of any and all debts they are attempting to collect. The collector has to provide information about who they are, the origin of the debt, how the debt can be paid, how much is owed, and how to respond. When you receive this information, you have 30 days to dispute the debt.
Scammers posing as debt collectors often try to take advantage of people after they lose a loved one. If you receive communication claiming your loved one owes an outstanding debt, notify your attorney as soon as possible.
How Can You Deal with Debt Collectors?
When you die, most of your debts are satisfied through estate administration. However, because Nevada is a community property state, if you leave a surviving spouse, they may be on the line for your debts. At Mills & Anderson Law Group, our lawyers overlap between estate planning and family law practices. We know family is at the heart of estate planning, and we can help you leave your family in the best shape possible, regardless of your debts.
