What happens to our debts when we die?

Rachel Lee

Rachel Lee

Last updated 01 July, 2022

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We've all heard about people around us receiving a huge inheritance when one of their family members passes. We've even heard about people receiving a house and more. But how many of us have heard about what happens to the debts of those who die?

Loans repayments and credit card bills come for you regardless of whether you're sick or busy, but what do you do about it when you eventually pass away? Will one of your family members end up inheriting your debt?

Here's a short answer: your debt doesn't just disappear when you die.

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But before we explain, let’s look at what happens to a person’s assets after they pass on.

First of all, it's important to know that a person can die with or without a will. If the deceased had a will, the person who will be in charge of their assets will be stated accordingly. However, if there is no will, a court-appointed handler will manage their affairs and issue a Letter of Administration. It is similar to a will and lays out all the assets of the deceased.

With or without the will, there would still be a person in charge of handling the deceased's affairs. This person is known as an executor. The executor will work to distribute the deceased's wealth to their next of kin and clear their debts.

So, do executors inherit the debts of the deceased?

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Executors do not inherit debts. Thus, the debts won't be transferred to their name.

An executor will instead use the deceased's remaining money to pay the debts off or sell any remaining assets to settle the debt. So even if the deceased left a house for their next of kin, there's no guarantee that they will still get the house. If the deceased did not have any money left when they passed, the executor will need to sell the house to settle the debt first. Any remainder of that money, however, will be given to the next of kin.

What if there aren't any assets of money left?

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If there aren’t any assets or money left, the debt should technically be written off and be marked as void. Therefore, even if creditors ask the next of kin of the deceased to pay up, they can't actually force them to do so. Of course, this is unless the next of kin co-signed the deceased’s loan or was a guarantor for the loan.

However, if you're ever in the position where you're being forced to pay for the debt of a deceased person, you can make an appeal to the creditors to reduce or even waive the debt. It's legal for creditors to exercise their discretion in different situations, especially if the family is struggling financially.

Further, do make sure to read the fine print of the loan contract to find out if it includes a clause that allows those facing certain circumstances to waive the debt.

Now that you've got this covered...

Be sure to prepare a will and clear off any debts your have as soon as possible. After all, you gotta make sure your loved ones aren't burdened when you pass away!

With creative wit and an immense passion for writing in her back pocket, Rachel Lee creates impactful content about finance, lifestyle, and more.