Dear Debt Adviser, My father had a real estate company and was the sole owner of the business. The business closed several years ago due to my father's Alzheimer's disease. He has now progressed to hospice. Two business creditors have hired collections agencies to collect from my mother even though they have been formally informed in writing that this is a business debt, having nothing to do with my mother. What would be the best way to approach this? -- Wendy
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Dear Wendy, I am sorry that your family has to deal with debt collectors while your father is in hospice care. Added stress is not what you need right now. In the short term, you might consider having your father's power of attorney send the two creditors a polite but firm letter that states your mother does not intend to pay the debt and that your father and mother do not wish to be contacted regarding the debt(s) again. The Fair Debt Collection Practices Act requires collectors to conform to the no-contact request with the exception of informing the debtor that additional action is planned or being considered.
This action will give you a temporary reprieve, but depending on several factors you may eventually need to revisit these debts. The larger the debt (and if the business has assets), the more likely it is that the collectors will continue to look for ways to get paid. The structure of the business will have a bearing on whom the collectors can collect from.
- First, if your father's business was a sole proprietorship, the collector is within its rights to attempt to collect the debt from your father personally, due to the financial liability structure of a sole proprietorship.
- Second, should your parents live in a community property state ( Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin) and the business was a sole proprietorship, then your mother could be held personally responsible for the debt.
- Third, should your parents not live in a community property sta te and the business is a sole proprietorship, the collector can sue your father or his estate , should there be one, for the debt owed.
- Lastly, if the business was not a sole proprietorship but a corporation or limited liability company known as an LLC, you are correct that the collector cannot pursue collection from your father or your mother.
Due to the number of possible different scenarios and the stressful period in your lives, I recommend that you speak to an attorney and let him or her advise you on your legal liabilities and options. Then you can decide if it would be wiser to let a professional handle the collectors.
Your attorney will know the collection laws that apply to your father's debt and will communicate with the collectors on your behalf if you wish. The added bonus to using a lawyer is that when any collectors call or write regarding the business debt, you simply let them know you have an attorney. The Fair Debt Collection Practices Act requires that all future communication to your mom stop and it be through your attorney.