At Bankrate.com, Steve Bucci answers a "debt advisor" question from a reader who had accumulated some $35,000 of gambling debts. The reader's father took out $35,000 in "unsecured loans" - i.e., cash advances on credit cards - and had begun paying off those advances, apparently with money from the son. The father then died unexpectedly. The reader's mother knew nothing about the loan arrangement.
The father left no assets and no will. The reader's concern is that the credit card companies would try to collect on the debts from his mother, who does have assets. He wonders if he should "continue to pay on these debts". This suggests that it was the reader, not the father, who had been making the payments on the credit card accounts.
Bucci's answer includes these points:
- If the parents are residents of a community property state - Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin - then the mother would have a responsibility to follow up on these debts.
- If they live elsewhere, then she has no legal responsibility for the debt.
- She may still feel a moral obligation to make good on the debt.
- She needs to know about the arrangement, because she is likely to be contacted by the creditors, and is likely to be give false information suggesting that she has a legal obligation to continue to pay on the accounts.
- Both of them should consult with counsel regarding their rights and obligations.
He recommends that "the executor of the estate" make contact with the creditors, explain that the debtor has died, and provide a copy of the death certificate. He overlooks the fact that the father died with no will and no assets. There will not be an estate or an executor (in Michigan, a "personal representative"). But the advice is sound. Any family member can make the contact and provide the certificate.
When a debtor dies, the following applies in Michigan:
- Any debt which is secured (car loans, mortgages) must still be repaid. If it is not repaid, the property securing the debt can be seized and sold.
- Any debt which is unsecured must be repaid from the probate assets of the deceased, or from his trust assets.
- If there are no such assets, then the creditor will not be able to collect.
"Probate assets" refers to any property that was owned by the debtor, in his own name, without any other person as co-owner. If the debtor dies without any probate assets, or without assets passing to others under a trust, then the creditors are out of luck. The death benefits of life insurance policies, money passing under an IRA or other form of pension to a designated beneficiary, or property passing by virtue of joint ownership are not subject to the claims of the creditors of the decedent. The sole possible exception would arise if it can be shown that the decedent took steps to defraud his creditors by moving personal assets into some form of ownership that would not have to respond to his actual and known debts.