What Happens to Your Debt After You Die?

by Estates Plus Finalise A Deceased Estate

Dealing with the debts of a deceased person is a daunting task. It is obvious that no-one enjoys talking about death but thinking about what happens to debt when you die is important. While you might think all your financial problems will die with you, it is possible your family could inherit your debt. Deceased estate lawyers in Sydney recommend you don't let your debt come back to those you love. You must make sure you are leaving behind a legacy to be proud of by taking control of your money now.

Debts typically become the responsibility of your estate after your death; your estate is everything you own before your death. After you die, the estate's finances are handled by the executor, administrator, or personal representative. That person pays the debt from money left in the estate, not from their own money.

As the executor of an estate in Australia is responsible for dealing with your Will and estate after your death, their responsibilities might include writing checks from a bank account or selling a property to get the money.

About joint debts

If two people have taken out a loan together, the outstanding debt will pass in full to the surviving person in most situations. If there is a mortgage, a registered civil partner, i.e. your surviving spouse, must pay for that mortgage. However, they are not compelled to pay any of your other debts.

If you are a sole owner, Will's executor is expected to use any assets to pay off debts. This could potentially involve selling off the property depending on how much is owed. However, if you are joint tenants, your home does not form part of your estate. But when you calculate the value of the asset for taxation purposes, the value of the deceased person's share of the jointly-owned property is included.

A joint mortgage and a joint current account with an overdraft is an example of joint debt.

What types of debt can be inherited?

Mortgages and home equity loans

If you are the only owner of the property and the mortgage, your estate is responsible for paying back the loan. However, if someone inherits the home, they may be subject to the debt if passed directly to them. If that's the case, they have the flexibility to sell the home to repay the debt.

Credit card debt

The outstanding balance on a credit card is an unsecured debt. This means that if the deceased estate in Sydney can't pay the balance, the credit card company is out of luck.

Car loans

They are typically paid out of your estate. However, as car loans are a type of secured debt, the lender can repossess the car if payment is not received. If the beneficiaries want to keep the car and your estate can't pay off the loan, whoever inherits the car can continue paying for it.

Undisclosed debts

Once all the debts after the deceased's passing are paid, the executor might find particular debt they knew nothing about. Before you start arranging to pay for the debts, it is a wise choice to advertise in a local newspaper. This gives the deceased's creditors time to come forward with any claims.

You are, of course, not under a legal obligation to place a Deceased Estates notice but if you don't do that, you are putting yourself at risk. You could be held responsible if you distribute the estate and a creditor then comes forward. There might even be a chance that you have to pay the debt from your pocket.

Your role as an executor to deal with the debts

If you are an executor and are responsible for the deceased’s estate administration, you might be required to sort out their debts and work out what still needs to be paid. Here are some of the steps you can take to mitigate any issues regarding the payment of the debts.

Ensure that the bank immediately stops taking any scheduled direct debts from the deceased's bank account in the case of individual debt.

Contact creditors and ask them to send a statement outlining what is still owed.

If it is a joint debt, the deceased's name can be removed from the debt.

Check the records, computers, memory sticks and cloud-based storage for digital versions of documents.

Planning for a future where you are no longer around can be devastating but thinking about clearing your debts is important. If the entire process seems a lot for you to take in, get assistance from a professional legal team. EstatesPlus is the name to count on for all queries regarding paying debts after your death. We make managing the deceased estate in WA much easier and manageable.