How different debts are recovered after death
If you have an outstanding loan when you die, which is secured against an asset owned by you, the lender can take that asset if repayments on the loan stop. So although your friend or family member is not technically responsible for your debt, the estate may lose the asset if the loan can’t be repaid. If the secured loan is in joint names, unless the co-borrower maintains repayments, it may be repossessed.
If you have a debt in joint names – e.g. a credit card debt – then everyone whose name is on the account is responsible for the debt. If one account-holder dies, their estate may be used to pay off part of the debt or the joint account-holder will be responsible for the whole debt.
If the deceased account-holder has no assets in their estate, or not enough to fully pay off their share of the debt, then the other account-holder will have to pay everything that is outstanding.
When you guarantee a loan for someone, you are promising to continue repayments if the borrower stops making them.
So, if you have a loan that is guaranteed by someone else, that person will be responsible for making repayments if you stop making them.
If a friend or family member has guaranteed your loan, the bank can chase that person for the debt after you have died. If the debt is secured, the bank can also sell the secured asset.
If your estate doesn’t have enough money to pay out all your debts, and the debts are unsecured debts in your name only, with no guarantor, then the debts may not have to be fully paid.
A lender cannot request your family members to pay your debts after you have died, unless:
- they have an asset which has been used as security for your loan
- they are a joint borrower, or
- they have guaranteed your loan.
The executor will deal with the lenders and let them know that the debts will not be repaid. The executor is responsible for checking whether there are any assets, such as superannuation or insurance, available to creditors to repay the debts. Other family members do not have to do anything.