What happens to your debts when you die?
Although one usually thinks about receiving an inheritance from the older generation, seniors are increasingly accumulating significant debt in retirement, and many have no intention – or ability – to pay off the debt.
Betty, an 85-year widow, tries to get by on $1,074 a month in social security. Much of the family savings paid for Frank’s medical bills. “And I wanted to give Frank a decent funeral,” said Betty, “We were married 55 years.”
She spent about $8,000 on Frank’s funeral when he died in 2004. Frank left her an additional pension of $203.89 per month, and after going through her savings, Betty accumulated $35,957 in credit card debt in the 5 years following Frank’s death. She has $2,312 in assets, most of which is furniture, some clothing, and the engagement ring Frank gave her in 1947.
Out of control debt is becoming an increasingly common concern for seniors. Just this week, USA Today reported that a survey of retired Americans shows that: 40% had accumulated credit card debt during retirement; more than 50% had saved less than $50,000 on the day they retired, and many had saved nothing; and 75% went into debt for medical or funeral expenses. USA Today concludes that “whatever a parent owes will be deducted from his or her estate before that estate is divided among the children and other beneficiaries…Imagine a scenario where the kids are bickering over who gets mom’s house and, in the end, no one gets it because it had to be sold to pay off mom’s credit-card debt.”
USA Today is right if Mom has assets, but what happens if mom – like Betty – has no assets, or almost none. Betty’s debts might die with her. Well, the Big Banks sure don’t want that to happen! The Big Banks have heard that Federal Trade Commission (FTC) is addressing this concern, so they’re putting the lobbyists to work.
FTC Proposes New Guidelines for Collecting Debt from Dead People reads a November 22, 2010 headline in The Washington Post. The FTC sees that creditors sometimes try to persuade consumers to pay the debt, even though they have no obligation to do so. The FTC found debt collectors often operating in gray areas, appealing to consumers’ “moral obligation” to pay the debt, and even implying that those with authority to pay the debt must do so out of their own pockets. But the fact is that all debts should be paid out of the deceased’s estate. If the Big Banks don’t like that, maybe they shouldn’t have loaned the money in the first place.
Please feel free to contact the Stephen Mooney Law Offices, PC to review your specific legal needs. If you need a Debt Attorney in Massachusetts, call Steve at 978.457.3834. To get started, contact Steve today, and he will help you with all your legal needs.