What Happens to Debt When You Die?

Many of us are worried about what will happen to our families after we are gone. If you are carrying debts, you won’t want them to be passed on to your next of kin. Here is what happens to your debt when you die, and what you can do to take care of it.

What happens to debt when you die - Hands of old man

Factors that affect your debt

There are lots of factors that might affect what happens to your debt. It all depends on:

  • Whether your estate contains any assets such as money or property
  • Whether the debts are secured or unsecured
  • Whether the debt is in your name or jointly held by someone else
  • Whether the debt was guaranteed by someone

Unsecured debts are better for you than secured ones. A secured debt means that the bank can take your property and sell it to recover their lost investment. With an unsecured debt, they would have to get a court order to do the same. This applies when you are still alive, too.

Paying off debts

First of all, your debts are normally paid out of your estate. A trustee or executor will divide up the estate and ensure that everything goes to who it should. If there isn’t enough cash in your estate, your property could be sold off to cover the debts.

The debts may not need to be paid off if the estate doesn’t cover them. They only need to be paid by others in these circumstances:

  • The debt was secured against an asset that someone else owns
  • Your debt was put in a joint name with another person
  • Someone has guaranteed the debt for you

This means that your debt may actually be cleared when you die, leaving your family free to move forward. A lender cannot force your surviving family members to pay the loan back if the above apply.

The executor of your estate and will is responsible for checking whether your debts can be repaid or not. Other family members don’t need to worry about it.

It’s not comforting to think about your own death, but you can at least prepare for it. Make sure that your family aren’t caught out by following best practices with your debt. Try to pay off as much as possible before you die. If that can’t be done, consider taking debt onto your own shoulders. Don’t ask others to sign or guarantee the debt.


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