The Wall Street Journal had an interesting article posted on November 21st related to the Federal Trade Commission (“FTC”) investigating debt collectors. At first blush, I just flipped over the page to find a more interesting article, but, after a second thought, I realized how important debt collection is to my probate practice and dove into the article. In simple terms, probate is the process of settling creditors’ claims i.e. debts, and paying out any remaining assets a decedent had to beneficiaries.
In this case, it looks like consumer advocates are concerned with the FTC’s proposal
Laws aimed at protecting families of those who have died in debt are drawing fire from consumer advocates fearful that the floodgates to aggressive collection tactics will swing open instead.
After thousands of complaints, the FTC is proposing several changes to the process debt collectors can take to collect debts owed by someone who has died. The guidance includes stating who can be contacted and what can be said by debt collectors in a debt collectors attempt to collect on the decedent’s debt. For probate purposes, the debt collector represents a creditor making a claim against the decedent’s estate.
The FTC proposal also includes preventing debt collectors from mailing letters to the decedent’s residence stating the deceased owed this debt and whoever opened the letter has to pay it. Under probate law only the decedent’s estate, except for some joint account issues, owes the debt to the creditor. Relatives and friends of the decedent, except in rare instances, do not.
The WSJ does get one statement wrong:
[The FTC’s proposal] also calls on collectors not to mislead the executor or administrator of the estate into believing that they are personally liable for the debts.
This is technically inaccurate. (See here). A personal representative could be personally liable for a debt if they mistakenly distributed assets out to the wrong beneficiaries or paid creditors in the wrong order of priority and there were insufficient funds in the estate to correct the mistake. Then the personal representative would be personally liable to make the creditors whole.