Medical Debts’ Payment Exceptions for a Deceased Person
The medical debt does not go away when the debtor dies but makes the survivors or the executors pay the amount. Instead of like all other debts, the medical debts are paid by estates.
Estate is the term to describe all the left behind assets of the deceased person, including property, liquid money, and other valuables. When a person dies, the estate is used for paying off the debt. If the person had a will and an executor, they would be responsible for paying off the debts from the estate. If there is no will and executor, the judge will find an administrator to pay off the debt from the estate.
Before the heirs receive money from the estate, the debts must be paid off. If the estate value is equivalent to or excess of the debt, the estate is solvent which means it can afford to pay off the debt.
If the asset is lower than the debt, the estate is considered insolvent. The situation will turn a little complicated then. According to state and federal laws, the court will prioritize the creditors if the estate cannot cover the entire debt amount. Some creditors will get the total debt amount, some will get a partial amount, and some will get nothing when the estate distribution is prioritized. The estate's executor might have to sell items like a home or car to pay off.
When the debt is higher than the debts, does the family need to pay it off? In most cases, no. If the estate cannot pay the medical debts, the creditors generally write it off. However, there are exceptions, and if the creditors do not receive the amount, they can hire a healthcare debt collection agency.
Cosigned medical bills:
While seeking medical treatment, you need to sign a few papers and bonds assuring that you will pay the rest amount that your health insurance does not cover. If someone else has signed the documents on your behalf, the signee will be responsible for paying off the debt if the patient dies. This rule varies according to the states and the document types.
Filial responsibility laws:
More than half of the states have a law for adult children to support the aging parents financially if they cannot do it for themselves. Such laws are barely used because Medicaid usually pays all the medical costs. Nevertheless, Medicaid can chase the estate to retrieve the benefits.
Medicaid estate recovery:
If a Medicaid recipient dies at the age of 55, federal law needs the state's Medicaid program to attempt to recover the debts from the estate. The obligations include nursing facility service, community and home-based, and hospital and prescription drug services. Medicaid does not make the survivors responsible for making debt payments, but the estate would recover. In addition, the spouse of the deceased person, children under 21, disabled or blind child, Medicaid cannot chase for the repayments.
Community property states:
The community property states are Idaho, California, Arizona, Nevada, Louisiana, New Mexico, Texas, Wisconsin, and Washington. In the community property states, the spouses are liable for paying each other’s debts even if they did not incur the debts. Nevertheless, community property laws differ from state to state; therefore, you should serve as your attorney for the details.
Notifying the Creditors about the Debt
Once the debt is established, the executor or the surviving family member would notify the creditor about the debtor’s death. Upon receiving this information, the creditor should stop all the attempts to collect the unpaid bills until the estate has been figured out.
The creditors should inform the major credit bureaus about the death. The Social Security Administration also keeps on notifying the bureaus about the deaths along with the Social Security numbers. The executor or the survivor also should inform the bureaus about the death. The family also needs to provide proof of death, such as a death certificate. Except for the surviving spouse, any other person would have to provide evidence of their authorization. For example, if you are an executor of an estate, you may need to submit a copy of a legal document sealed by the court affirming your claim.
When the credit bureau knows about the death, the credit report will show the debtor as a deceased person. The fundamental objective is to prevent identity theft. If anyone else tries to get credit using a deceased person’s information, the bureaus will be alerted and stop any fraudulent transaction.
Is Your Credit Score Affected by a Relative’s Death?
Since you are not personally liable for a debt, the death of a parent or a relative would not ever affect your credit score. However, an exception is applied when you are a co-signee of the medical debt; you stay in a community property state. The state you live in has filial responsibility laws; the estate is insolvent; you could be responsible for the debt personally. How is it going to affect your credit?
Medical debt is never treated along with other obligations. It will never reflect on the credit report even if you delay the payment or the internal collection department has started contacting you for compensation. The problems may occur if the medical provider has already sold the debt to a third party debt collection agency. If so, it will have a 180 days grace period before the collection account reflects on the credit report.
The liable person would take this grace period seriously to keep the score healthy. This time should be used to find errors on the medical bills and correct them. If the insurance company does not pay the account, you should contact the medical health service provider. It would be best to try to lower or negotiate the bill or arrange a payment plan but do not ignore the medical bills.