When someone has passed away and still have debts owing, doesn’t mean creditors don’t have options to recover it.
The details of what applies to debt the following death can vary depending on a lot of different things, including the form of debt, whether there was a co-signer or guarantor, and the valuation of the estate of the deceased party.
Unless the surviving relatives are co-signers or guarantors of any debts, they will not be liable for paying off any debts out of their own pocket.
Here are three potential scenarios that could happen to your debt once you’ve been passed.
Who has to pay off the debts?
It is the responsibility of the executor or administrator to pay off the debts.
Being an executor does not mean you will be held personally liable for any debts of the estate. However, there are some exceptions and taking on the responsibility does come with some risks.
If it’s a large or complicated estate, you might want to consider seeking the advice of a solicitor or probate specialist.
Upon your passing, the properties that you left behind — including your home, bank accounts, savings, and other important assets — all become part of your estate. During the probate period, which is the civil process that exists to resolve your affairs and move your assets, creditors are entitled to make charges against your properties.
If you died with a will and appointed an executor, the executor will typically use the assets you left behind to settle your debts. Usually, if you have insufficient assets, creditors are out of luck if you have an unsecured loan without a co-signer or guarantor. For instance, if credit cards would be written off. However, when you have a secured loan, such as a mortgage or auto loan, the family will have to pay off the interest to retain the asset.
When there is no co-signer and no enough money in the estate to cover the debts, creditors will only write off the debt and there is no way to recover it.
Creditors may want family members to pay their debt following their departed loved one’s death, there is usually no obligation that you repay a loved one’s debt. Individual debts can be secured or unsecured.
Any surviving spouse, civil partner, or relative cannot be required to pay off individual debts out of their own pocket, unless they have provided a personal guarantee.
A personal credit card with an outstanding unpaid balance is an example of individual debt.
If two or more people have taken out a loan in all their joint names, in most situations the outstanding debt will pass in full to the surviving people who took out the loan.
If your property doesn’t have enough money to pay off the mortgages (or you don’t have assets), creditors will go for the loans and some co-signers (joint applicants) or anyone who was a guarantor. Co-signers share civil obligations for debt and will be kept 100% liable for settling the outstanding balance in full.
When you have a shared account, creditors may even threaten to recover from co-borrowers. For starters, if you and your partner have a mortgage together or joint loan, following your death, your spouse will be contractually obliged to continue with those payments.
Make sure that you comprehend your rights
If you are afraid that your loved ones will be left with your mortgage until you leave, make sure you grasp the sorts of loans you have and the recovery laws. In order to protect your properties and ensure that your family will still inherit without being saddled with huge debts, you may wish to consult with an estate planning specialist.