When a debtor dies, that person's financial obligations may carry over to his estate or co-borrowers. But even if the debt expires with the deceased, the campaign to collect it lives on.
A specialized niche within the debt collection industry has arisen in recent years focused on persuading, cajoling and sometimes intimidating surviving relatives into settling up for the decedent's debts, even if they have no legal obligation to do so.
These companies frequently contract with major lenders like banks and consumer loan companies to put the squeeze on a deceased debtor's heirs without inflicting public relations damage on the institution. One of the largest agencies proclaims its mission to "protect our clients' brands and maximize their recoveries" by isolating the financial institution from the collection process.
To be sure, creditors have an obligation to their shareholders to make every legitimate
effort to secure repayment of debt, even after the borrower dies. If a loan is co-signed or jointly made (like a mortgage or joint credit account), the responsibility to satisfy the obligation passes to the surviving party. If no other borrower is responsible, the decedent's estate assumes the debt and the responsibility to repay.
However, if the debtor dies with no assets and no co-makers, the creditors may be out of luck legally. Surviving heirs do not inherit the obligation to repay loans beyond the ability of the estate to pay up.
Operating under a variety of euphemistically benign titles like "survivor recovery services," these agencies often employ data mining techniques to identify related parties, and frequently utilize increasingly aggressive collection tactics to secure payment from bereaved relatives.
A relatively recent phenomenon, death-debt collection is likely to become more prevalent in the years ahead as baby boomers retire in larger numbers with bigger bills.
According to Federal Reserve data, the median debt level among Americans ages 65 to 74 is $40,000, up over 250 percent since 2001. And the pile is growing faster than for any other age group, thanks to depressed home values, puny retirement savings and longer life expectancies.
And the practice is lucrative.
Collection companies are typically compensated based upon the volume of recoveries. According to the Wall Street Journal, death-debt collectors can retain up to 40 percent of the amounts collected, about twice the take of more conventional (live) debt collection.
If you are handling the affairs of a deceased family member, be sure to know your rights and obligations. If you are unsure, contact an estate or probate attorney to confirm whether you have any liability for the debts of the deceased. The Fair Debt Collection Act prohibits collectors from contacting you at "inappropriate times," and requires them to desist from contacting you once you have sent a "cease contact" letter, other than to inform you of legal action.
Get answers to financial questions on Wednesdays from our columnists who work in the financial services industry. Christopher A. Hopkins CFA, is a vice president at Barnett & Co. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by emailing him at dflessner@timesfreepress.com