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What if someone who owes a company money dies in debt?

On Behalf of | Apr 22, 2024 | Uncategorized

Debt collection is a necessary aspect of doing business in many different industries. Companies that offer payment plans may have to deal with customers who fall behind on their obligations. Even those who require up-front payment could face situations involving reversed credit card transactions or bounced checks.

It can be difficult for a business to push a debtor into financial compliance. Collection efforts are subject to strict legal oversights at both the state and federal levels. Companies attempting to collect on a debt have to carefully comply with the law if they want to avoid legal action and financial penalties.

Complying with debt collection rules may lead to a scenario in which recovering the amount owed by a debtor is a very slow process. Sometimes, businesses learn that someone with a substantial outstanding debt has died. How can a business collect on a debt when the person who owes it is no longer alive?

Creditors can make claims in probate court

Someone’s debts don’t just disappear when they die. The property that belonged to a now-deceased debtor becomes the property of their estate. Their debts also become the responsibility of their estate. In theory, creditors have the right to make a claim in probate court in pursuit of repayment. The personal representative of an estate is subject to requirements to communicate with creditors. They also typically need to use estate resources to pay someone’s debts before they distribute any assets to the beneficiaries of the estate.

Communicating with the personal representative of the debt is typically a key element of a successful creditor claim in probate court. The person managing estate administration typically needs to send written notice to creditors. Creditors can then make claims seeking payment for debts.

In scenarios in which the representative fails to provide appropriate notice to creditors or does not repay them in compliance with state probate laws, it may be necessary to file a lawsuit. In some cases, the personal representative could be financially liable for the debts that they failed to cover during the estate administration process.

Taking timely action is crucial to the protection of a creditor’s financial interests when a party who owes money dies before paying their debt in full. Businesses that need assistance when evaluating their debt collection options may want to secure outside assistance with that process. Ultimately, learning more about different debt collection rules may benefit creditors worried about safeguarding and exercising their rights.