What to Do When Credit Comes Back From the Dead

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Published September 24, 2012

| FOXBusiness

Here’s the scenario: your 26-year-old son was killed in a car accident two months ago. In addition to dealing with your grief, you’ve been wrapping up his financial life: paying hospital, doctor and utilities bills along with other creditors. 

Just when you thought you were done, a statement is forwarded from his former address. It’s from a credit card account attached to a major electronics chain and contains several expensive purchases. One is for a laptop bought the week before he died. Others include two 52” LED TVs and several DVD players. These charges are dated the week after your son’s funeral. 

While you’re not sure if your son made the laptop purchase, the others are clearly a case of identity theft. Someone saw his obituary, obtained his Social Security number (it’s harder to get than it used to be, but not impossible- just think of all the folks who had access to his medical records!) and had a new credit card issued. Then the thief monitored his mailbox, snatched the new card and went on a brief--but expensive--spending spree.

You call the credit card company and explain the situation. The agent who takes your call is sympathetic and says she will pass it along to the proper authorities at her company. 

But the statements keep coming. And now the credit card company knows your contact information. Six months later you’re getting threatening phone calls at all times of the day and night from nasty individuals at a debt collection company.

Now what? Are you obligated to pay your son’s debt? What happens if you don’t? How do you stop the harassing phone calls?

The first thing to understand is that your son’s debts are your son’s debts. They are not yours and no matter what creditors claim, no one can legally force you to pay them. 

As the executor of his estate, your obligation is to pay the legitimate outstanding debts your son owes from whatever assets owned in his name. There may be a hierarchy that has to be followed, starting with any outstanding taxes that he owes. 

If there isn’t enough in your son’s accounts to cover all of his final bills, his creditors have to write them off. “Credit cards are unsecured loans,” says Bill Hardekopf, spokesperson for LowCards.com, an online credit card comparison source. “I tell people that that’s why credit card rates are so high while others, like car loans and mortgages, are much lower.”  

In other words, credit card issuers charge a higher interest rate because they’re taking a bigger risk. If you default on your car loan, the company financing it can re-possess the vehicle. If you’re delinquent on your mortgage payments, you could find yourself out of a home. In both cases, the lender can re-coup some or all of the money you owe. But as Hardekopf points out, “If you don’t pay your credit card bill, they can’t take the clothes off your back.” Or remove the big-screen TV from your living room. 

Moreover, in some states, such as Michigan, it is against the law for creditors to contact relatives of the deceased to try to collect on an outstanding debt.

The situation can get a little confusing if you are named on the decedent’s account. For instance, what if the credit collectors say your son listed you as an “authorized” user and that makes you personally liable to pay off his bill?

Don't believe it.

As an “authorized user” of his credit card, you have absolutely zero financial obligation to the issuer. This is true even if you are the spouse of the credit card holder, with one important exception: In community property states(1), whether you are named on an account or not, debts incurred by one married partner are considered debts of the other.

On the other hand, if you are the spouse of the decedent and co-signed the account application, that makes you jointly responsible for paying the balance- assuming the charges are legitimate. If there’s identify theft or fraud involved, you need to take specific steps to protect yourself. And, the quicker the better.

The most thorough resource on how to deal with ID. theft- yours or someone else’s- can be found on the website of the Federal Trade Commission (FTC). 

As it explains, one of the most important things to do is report the suspected ID theft to your police department in order to obtain a Theft Report. Send a copy of this, plus a Fraud Dispute Form explaining the details (you can use the one on the FTC site if the credit card company doesn’t provide one) to the credit card company via certified mail, return receipt requested. 

Keep the original copies of all documents and receipts. Just send copies.

In addition, you can consider requesting that the credit card company put a “fraud alert” on or “freeze” your account. (The latter is a more drastic option that prevents businesses from checking your credit report, so if you’re applying for a mortgage, you might have to temporarily lift this.) The important thing to understand is that while both actions make is difficult for someone to open new accounts in your name, neither will stop a thief from using your existing accounts. 

As for those nasty bill collectors, the Fair Debt Collection Practices Act (FDCPA) places very specific restrictions on whom they can contact, when they can call and what they can say. They cannot, for instance, threaten that you will be arrested if you don’t pay, swear at you, repeatedly harass you by phone, or falsely claim to work for the government or a credit reporting agency.  Again, the FTC website is a terrific resource.

1. Community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska gives married couples the option to treat some or all of their assets as “community property,” but this has to be detailed in a written document.

Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content. 

If you have a question for Gail Buckner and the Your $ Matters column, send them to: yourmoneymatters@gmail.com, along with your name and phone number.

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