Many people worry about what will happen to their debts after they die. Often, they are concerned that their family members will be responsible for paying off the debt.

What happens to your debts after you have died, depends on whether:

• there are any assets (money or property) remaining that can be used to pay off debts
• the debts are secured or unsecured
• the debts are only in your name, or in joint names with someone else
• someone has guaranteed the debts.

If there is a will, an executor will have been named. This person takes on responsibility for locating the money and property left behind (called the estate) and paying any debts or liabilities, before distributing the remainder of the estate to people named in the will as beneficiaries. (For more information on the responsibilities of an executor, see Your role as executor.) If there is no will, your next of kin can decide who will administer the estate.  They can either administer it themselves or engage a lawyer to assist them.

Paying off debts

When a person dies, any outstanding debts are paid off by any money or property left behind. This is known as their estate. The executor in the will divides up the estate, and gives the assets to the beneficiaries.

The executor must advertise in the newspaper for any creditors to come forward.

• If there is enough cash in the estate - the executor pays off the debts owed to those creditors with the cash in the estate.
• If there is not enough cash in the estate - the executor will sell property and use the money from the sale to pay the debts.
• If there is not enough money in the estate after all the assets are sold - then the debts may not need to be paid.

Other people are only responsible for paying the debts if:

• the debt is secured against a particular asset owned by someone else
• the debt is in joint names with someone else
• someone has guaranteed the debt.

The difference between secured and unsecured debts

• Secured debts – This is a debt that is secured against a particular asset. When a bank lends you money, they may take security for the debt. That means that if you stop making repayments, the bank can take certain property (called the security property) and sell it to recover the amount you owe. For example, if you have a mortgage, your house is security for your home loan. If you stop paying your home loan, the bank can take your house and sell it to pay off the debt.
• Unsecured debts – With these debts, if you stop making repayments, there is no particular asset the bank can take and sell. The bank must go to court and get an order that your valuables be taken and sold to pay off the debt. Credit cards and personal loans are usually unsecured debts.