Citibank v. Dead Woman

The Bankruptcy Prof Blog offers up a delightful example of the Dilbertesque incompetence of credit card call centers in the case of a women who died with a zero balance on her credit card.

One of the things that they taught us in law school was that the empirical evidence shows that even major institutions that extend credit to consumers are rarely organized to collect debts through the probate claims process, in part, because most collectible claims are paid voluntarily. They don't even seriously try to collect debts in this way. Apparently, this is still true.

For what it's worth, some of the relevant law includes the following:

1. The non-exempt assets of a decedent are subject to the valid debts of the decedent, submitted properly through the probate claims process. These claims take priority over inheritances, and certain kinds claims have priority over others. Strict time limits apply. If no probate estate is opened, the creditor must open one in the right window of time to collect a debt from the estate.

2. If the claims filing deadline expires, heirs can take their inheritance of property which was not collateral for a valid debt, free and clear of the decedent's valid debts.

3. Creditors who have taken as collateral property of a decedent, generally continue to have a right to enforce their legal rights in the collateral itself.

4. While a decedent's debts may reduce the amount of property available to inherit, if timely claims are made or liens on the decedent's property are in place, the decedent's next of kin have no legal obligation to pay the debts of a deceased relative in the absence of a guarantee of that debt in writing. This rule arguably has U.S. Constitutional stature. Indeed, it isn't even rude to not to pay a dead relative's debts.

5. In Colorado, at least, there is no legally enforceable duty for anyone to give even a know creditor notice of a decedent's death before the statute of limitations for filing claims expires.

6. Fair debt collection laws may create liability for a collection agency if it incorrectly asserts that a relative of a decedent is liable for a decedent's debt, and tries to collect a debt from the relative. Despite this fact, collection agencies frequently do claim that relatives of a decedent are liable for the decedent's debts and attempt, sometimes persistently, to collect dead people's debts from these relatives.

7. Most states prohibit the use of courts outside the probate court process to collect debts owed by dead people (other than enforcement of rights in collateral and written guarantee claims brought against guarantors of a deceased person). There is a probate exception to federal court diversity jurisdiction, so federal courts are also not an option.

As always, there are obscure exceptions to the general rules above (e.g. an insurer may be required to make good on a claim, even when the insured has died and the period for filing claims has expired).

I do not know the answer to the underlying merits question in the case of Citibank v. the Dead Woman linked above, which is whether a person who has a zero balance on their credit card can be held contractually liable for annual fees and late charges incurred after their death. Many contract claims survive death, but a credit card is a terminable at will contract whose renewal is implied from inaction. It is not obvious that this implication is proper when one of the parties no longer has the capacity to enter into contracts at the time of the renewal due to death.