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How can you collect on a debt when the person paying it dies?

On Behalf of | Aug 11, 2020 | collections

When a person owes your business an outstanding debt, collecting that money in a timely manner is very important. You may make payment arrangements if they can’t pay the debt in full at one time. However, sometimes situations arise where an individual isn’t capable of repaying all of their debt.

One example of this kind of situation would involve a person dying before they completed a repayment plan on an account that your business holds. If you have outstanding debts in the name of an individual who has recently died, you might think that your only option is to write off that debt. However, you may have two viable options for pursuing repayment.

You can go after a cosigner when a debtor dies

When someone dies without repaying a debt, the full balance can become the responsibility of any other individual on the account. Even in circumstances where the deceased individual was clearly the one responsible for making payments, possibly due to a court ruling like a divorce decree, you may still have the option of initiating collection actions against a cosigner or co-borrower.

You can seek compensation from someone’s estate

In a situation where there isn’t a co-borrower or a cosigner but there is an outstanding debt, you may have no choice but to bring a claim against the estate of the deceased individual. As a general rule, the executor of an estate will have to repay outstanding debts owed by the deceased party before they can begin distributing assets to the heirs and beneficiaries listed in the last will or estate plan.

Even if there isn’t adequate liquid capital in a deceased person’s bank accounts to cover their debt, the executor could liquidate assets like vehicles or real estate as a means of repaying creditors. In fact, if the executor ignores debts and distributes the assets to the beneficiaries instead, you might have legal grounds to take action against the executor for failing to repay the debt.

Reviewing your contract that led to the debt can often be a good starting point for determining the best approach to collecting on a debt after the person who owes it dies.