When you die leaving behind debts that are not secured by collateral, such as collection debts, your creditors have the right to file a claim against your estate with the probate court handling your affairs. The probate court pays off your unsecured creditors and then distributes the remaining inheritance to your loved ones. Collection agencies find out about deceased individuals' estates in a variety of ways.
Estate Executor
If you designate an executor for your will and estate, that individual bears the responsibility of handling your financial affairs upon your passing. The executor typically obtains copies of your death certificate and notifies your creditors of your death. The executor also will sometimes publish notice of your death in the local newspaper to give creditors the family is unaware of the opportunity to file payment claims. Once the collection agency receives notice of your death from the executor, it files a claim with your county's probate court.
Family Members
If you do not have an executor or the executor was not aware of your collection account, the collection agency may find out about your death and your estate by calling your home and demanding payment. When your family members notify the debt collector of your death, the collection agency can then file its probate claim. Collection agencies often request copies of the deceased's death certificate from family members before searching probate records.
Computer Programs
According to the "New York Times," expanding technology allows collection agencies to search probate cases across the country via computer. If the collection agency uses a computer program that keeps track of new probate cases, the company finds out about your estate--and can subsequently file a claim--as soon as the probate court opens the case.
No Estate
Not everyone leaves an estate behind when they die. If your total debts exceed your assets, you are categorized as "insolvent." Creditors cannot file claims with the probate court to collect debt from insolvent individuals because no assets exist with which to pay the claim. Thus, even if a collection agency finds out about your death that does not mean that the company can pursue legal avenues for payment.
Time Limits
State laws vary regarding the length of time creditors have to file claims. If the collection agency discovers the existence of your estate but does not file its claim in a timely manner, the probate court closes the case and will not pay the company's claim. Unless a family member co-signed for the original debt or specific state laws, such as community property laws, dictate otherwise, your family members are not liable for collection accounts you leave behind upon your death.
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