Does your debt disappear when you die, or are your family obliged to pay your debts when you pass away?
Generally all of your debt – mortgages, credit card debts and car loans – will need to be paid back when you die.
The executor you appoint in your will to act for your estate will sell sufficient of your assets to pay all of your debts.
For bank mortgages over your land, the executor of your will uses the assets in your estate to pay off the mortgage. If there is enough money within your estate to pay off the mortgage, the executor may distribute the property which is mortgaged to the beneficiaries of your will , depending on the instructions in your will. A mortgage could also be paid out from proceeds of a life insurance policy.
If your estate can’t pay off the mortgage and the beneficiaries can’t afford to do so either, then the executors of your will have to sell the property, pay off the debt using the proceeds of the sale and distribute the balance according to the instructions in your will.
Will your executor or beneficiaries have to pay any unpaid debts?
Your executor and beneficiaries are not responsible for debts that cannot be paid by your estate. If someone else has co-signed on a credit card debt or loan, they will be liable to pay it off even after your death.
‘Authorised users’ on credit cards are not responsible for paying the card holder’s outstanding debts.
If you co-own a property with someone as a “Joint Tenant” rather than as a tenants in common, then the surviving Joint Tenant/s acquire the whole property automatically independent of your will because the property held in joint tenancy does not form part of the estate of the tenant who dies.
If my estate can’t pay off my debts, what happens?
If there are not enough assets or money in the estate to pay all of your debt, then the remaining debts are not required to be paid by your executor, relatives or beneficiaries.
If collection agencies still contact relatives about paying these debts, they should consult a lawyer.
If you have a question regarding what could happen with your own estate, or are working through the estate of a relative, please contact our estates team for further information and advice.
Our thanks to Tony Savage for writing this article