Many relatives end up in a very difficult situation when a loved one dies leaving debts, especially if the death is unexpected.
At such a painful time, many people are reluctant to think about dealing with the debts of the deceased and how to make repayments.
Many people assume that the deceased’s debts will be written off, but this is generally not the case and the debts continue.
Dealing with a person’s assets and debts when they die
When someone passes away, a person name in the deceased’s Will – called an ‘executor’ – or the next of kin if the deceased didn’t make a Will – called an ‘administrator’ – will have to oversee the collection of the deceased’s assets to form their estate.
Whether a Will is made or not, any outstanding debts are paid out of the estate.
As part of their duties, the executor (or administrator) must collect in any money or property the deceased has left behind and cover and outstanding debts from the estate.
What to do if the debts can’t be covered from the deceased’s estate
If there are not enough assets to cover all the debts, the bills will need to be paid in order of priority, as follows:
- Secured debts (e.g. mortgage company) are paid first because they get their money from the security
- The costs of administering the estate along with funeral costs are then paid in priority to everything else.
- The remainder is divided in proportion to the value of the debts, i.e. if someone is owed 80% of the total they are paid 80% of the remaining assets.
The beneficiaries will only inherit what they have been left in the Will once all the accumulated debts have been repaid.
Who is liable for the debts?
No one else is required to pay for the debts unless they are already liable under the terms of the original agreement; for example, if the debt is in joint names or someone has signed as a guarantor.
If the money left in the estate isn’t enough to cover the outstanding debt and you jointly owned a house with the deceased person, for example, you may have too sell the property to meet creditors’ demands.
What about money owed to the deceased?
It’s the executor’s (or administrator’s) responsibility to decide in cases when there is money owed to the deceased person, especially when there is a written agreement in place.
But if the borrower and the lender have agreed on the debt on a casual basis, it will likely remain irrecoverable since it could be impossible to prove.