When it comes to dying with debt, it is not something that people like to think about – especially in a world where credit card debt and personal loans are commonplace. Even if you don’t have a mortgage, loan or car loan that is secured against any assets you own, you can still end up accruing more debt that your estate can pay for. This is something that often happens when someone dies suddenly or unexpectedly.
There are two types of debt that you need to be wary of in this situation – unsecured and undisclosed debts.
Unsecured Debts
Unsecured debts are debts that aren’t secured against any assets that you have. These kind of debts are things like an overdraft, credit card debt, payday loans and so on. Most people will have some form of unsecured debt when they die, but often there is enough in the estate to pay off this debt without any problems.
On the repayment order, unsecured debts are one of the lowest priorities. Other things must be paid before unsecured debts can be addressed. These include inheritance tax and other tax debts as well as secured debts. Once these are taken care of, then unsecured debts are next on the list. Though you may want to leave something for your family members, if you die before you have cleared your debts and leave more debts, even unsecured, than your estate will be eaten up by paying off these debts and leave nothing for your beneficiaries, no matter what your will says.
Undisclosed debts
Undisclosed debts are the worst kind of debts for an estate. These can be debts that the deceased has forgotten exist. They can also be debts that the deceased was aware of but had no paperwork for so the executor has no knowledge of them until the creditors come forward.
Even if you have paid off all the other debts and distributed the remainder of the estate amongst the beneficiaries, any undisclosed debts have to be paid – even if it is out of your own pocket.
To help avoid this kind of situation, there are steps you can take. To start with you should advertise in the local newspaper as well as the Gazette. This is known as a Deceased Estate Notice. This kind of notices allows creditors to come forward before you start paying off debts. Though there isn’t a legal requirement for a notice to be placed in any paper, it is wise to do so to ensure the estate is settled in full and any undisclosed debts don’t come back to hurt the executor’s finances.
It is recommended that you place the notice and leave at least two months between the notice being placed and the date that you start paying off the debts of the estate so that creditors have time to come forward.
Want to know more about dealing with the debts of an estate? Contact our experts today to have all your questions answered.
