“What happens to debt when you die in Australia” may not be the most popular Google search in the land down under, but it’s one of major importance—especially for the potential family members that are unsure of the financial aftermath of a loved one passing away.
This article dives into understanding if, how, and what debt is transferred to whom after someone dies, as well as the types of debts, and consequently, assets that can help pay it off.
What happens if you passed away with debt?
The general rule of thumb when the question ‘what happens to debt when you die in Australia’ is asked, goes: the executor of the estate will pay off whatever debt a person has. This includes credit card loans, private loans, car debt, mortgage, or any other financial affair.
Are debts written off when you die?
If the person lacks assets that can meet the estate debts, the appointed executor will need to contact creditors and state that they can’t be repaid. This doesn’t mean that all debts are written off, but some can be depending on the amount of money. Otherwise, creditors can file an application to a court to have a bankruptcy trustee appointed to the matter.
Who inherits your debt when you die?
Your debt will be inherited by any person named on the account of a financial holding. This includes appointed executors, family members, friends, spouses, or any other person that has ties to the estate through legal documentation.
Is family responsible for deceased debt?
As a general rule, family members are not responsible for your debts, meaning the financial burden cannot be transferred to them. However, depending on the type of debt, some may have to be paid off regardless—cases of a joint debt, for example.
What if there’s a will?
Creditors cannot take any property or money from a will directly. However, if the deceased wouldn’t have enough assets or property to pay off their remaining debt, but still holds funds within a will, a court may enforce a judgement to use that money to pay off the remaining debt. Moreover, you can appoint a family member in your will to deal with any secured or unsecured debts.
What if there is no will?
Your family members cannot be forced to pay off your debts unless there is a clear connection in the financial holdings between both parties.
What about joint bank accounts?
Creditors can use money from a joint bank account to pay off any debts even if the other person doesn’t owe it directly.
How different debts are paid off after death
Unsecured debts most commonly include types of personal loans. If there is no way to pay for them otherwise (through a family member or friend), a lender can seek a court order to take any assets from the borrower and use them to pay off the loan.
An asset always backs up secured debts. It’s a type of collateral asset that is guaranteed to be sold by the lender if the repayments can no longer be made.
Debts in joint names
People named in any joint debts will be responsible for paying them off.
The guarantor will pay off any guaranteed debts.
Debts that are unable to be repaid
If all assets have been sold, and there is no way for the debt to be repaid, it will be wiped.
What if there’s not enough money from the estate?
Whatever remaining money is left in the estate will be used to cover remaining debts, and if there are no additional assets, the remainder will be written off.
What Assets Can’t be Used to Discharge Debts?
These are often personalised assets. They are protected, meaning they cannot be claimed for debt repayment. They include any compensation payment, insurance policies on a wider financial scale, as well as any personal items and family heirlooms with sentimental value. However, it’s vital to remember that even if you believe an asset is protected, it may still be used as a way to repay the debt if an asset protection policy does not officially cover them.
Where to get help and more information?
The question of ‘what happens to debt when you die Australia’ receives varying answers, depending on the person, their debt history, and the assets they hold. While you may think you’re insured from burdening your loved ones with repaying your debts, make sure to seek help and information first—and live the remainder of a very happy and fulfilling life after!