When someone dies their debts are settled by the executor of their estate. Generally, creditors have precedence over beneficiaries of the estate. Therefore, it’s important that you have a will that clearly states your wishes and appoints an appropriate executor. To ensure that your will is airtight it is best to speak to an estate planning lawyer.

What Happens to Your Debt When You Die?

The executor of a deceased person’s estate will use its assets to pay back any debts. Debts may include:

  • A mortgage
  • Private loans
  • Credit card debt
  • Car loans

Third parties, like family members, will usually not be liable for these debts unless they have personally guaranteed them. This will differ for joint debts, such as co-signed credit card debts or co-owned home mortgages. Ultimately, the best way to remove any uncertainty in regard to your debts is to have a clear will. For more information about the role of a will when someone passes away, check out our previous guide.

What if Your Estate Cannot Settle the Debts?

A deceased estate can go bankrupt in the same way that a person can. This means that a bankruptcy trustee may be appointed to administer the estate. If this is the case, there are some protected assets that cannot be touched by the estate’s creditors. These include:

  • Superannuation death benefit payments
  • Proceeds from life insurance
  • Proceeds from a compensation claim

Conclusion

Your debt does not disappear when you die. Debt may affect the distribution of your assets or expose your family members to liability. If you have outstanding debts it is recommended to speak to an estate planning lawyer about your specific legal needs. This is straightforward when you connect to LawPath’s lawyer marketplace and compare fixed-priced quotes on legal advice.

Do you need an estate planner? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from one our network of 750+ expert lawyers or any other legal needs.

Louis Bridle

Louis is a legal intern at LawPath who is working with the content team to provide accessible guides to legal issues. With an interest in contract and media law, he is completing his Bachelor of Communications and Laws at the University of Technology Sydney.