Most of us will be paying off some kind of debt in our lifetime, whether that’s a mortgage, a car loan or credit cards. But if we haven’t paid them off when we pass away, what happens to them? Does our debt die with us?

Here's what happens to debt when you die.

Unfortunately most of our debt doesn’t die with us, and there’s only one exception to that. If you have any unpaid HECS or HELP university debt, this dies with you and does not need to be paid out of your estate.

When somebody dies, the executor of their estate is responsible for paying any outstanding debts with the assets left behind. If there isn’t enough money to pay off the debts, property or other assets will be sold to cover them. If there still isn’t enough money after selling assets, the remaining debt is usually written off and forgiven. 

Whilst paying off debts is of high importance, the executor will also focus on paying any estate administration fees, as well as funeral costs. If all debt and fees are paid off, any leftover funds or assets will be distributed to the beneficiaries.

Will my family be forced to pay my debts?

There are only certain circumstances that your family or other people will be required to pay off your debts. 

If you share a mortgage or credit card with a spouse and they are also named on the loan, they will be responsible for paying off that debt. Funds from your estate may be available to help pay part of this debt.

If someone has guaranteed your loan, they will also be responsible for paying it off. This also applies if the debt is secured against an asset that is owned by someone else.

The different types of debt.

There are two main types of debt, which are secured and unsecured. Secured debt will take priority over unsecured when it is time to pay them off.

Secured debts are usually tied to a particular asset, like a car or home loan. Your executor can sell off these assets to help pay off the loan, or a lender can also come in to repossess the asset if the payments stop. 

Unsecured debts don’t have any assets connected to them, so your executor or lender has nothing to claim or sell to pay off the debt. The lender will need to go to court and get an order to take the borrower’s assets and sell them to pay off the debt. Examples of unsecured debts are credit cards, personal loans and any bills.

How can I protect my family if I die with debt?

The best way to keep your family protected when you pass away is to write a Will that includes a thorough estate plan. Some debts are unavoidable, like a mortgage, but having a Will in place that addresses any assets and debts will make the process less stressful and complicated for your family and your executor. 

Writing a Will has never been easier with Bare’s free DIY Online Will tool. For a limited time you can use our template for free, written by a dedicated Wills expert.