The loss of a loved one is not only devastating but also can have tremendous effects on family finances. Here is some information on how to manage the deceased’s debts to help you during this tough time.
2 types of debts that could be left behind
A type of loan that is backed by an asset such as a property or a vehicle, also known as a collateral. As there are less risks to the lender due to the collateral for secured loans, the rates for borrowers are normally lower than that of unsecured loans. Types of secured debts consist of mortgages, car loans and some personal loans. These are the first types of debts that need to be settled for the deceased after someone passes on.
A type of loan that does not entitle lenders the rights to any collateral. If the borrowers default or fall behind on payments, lenders cannot claim any asset as repayment from the borrower. Types of unsecured debts consist of credit cards, overdrafts, medical bills or even utility services. As the nature of this debt puts the lender at a higher risk, higher interest rates are placed on unsecured debts.
Whose responsibility is it to settle the deceased person’s debts?
Joint debts happen when you co-sign for a loan or any kind of joint agreement. If the debt is only held under the deceased’s name, you will not be accountable for the debts by the deceased. However, if it’s a joint debt, the surviving party in the agreement will still be responsible for the deceased person’s debts. If the deceased had bequeathed any asset with a joint mortgage on it, the heir or heiress will be accountable for the asset and would have to pay any remaining debts associated with the asset in order to maintain control over the asset or get a new loan.
If you happen to find yourself in this unfortunate event due to a joint mortgage or asset or because you are an heir or heiress of a property with a joint mortgage on it, it is important to notify the companies as soon as possible, request for a breakdown of the amounts owed to them and get them to explain to you on how to repay the remaining amount.
If a debt is only under one name, it will normally be settled using the funds from the deceased’s estate (the total amount of money the deceased had in savings, investments, assets or cash) or written off if there are insufficient funds to pay off the debt. In Singapore, surviving family members are not accountable to pay off the outstanding debts left by the deceased. Therefore, if any of your family member has passed away and the debt was only under their name, you will not be liable for the debts as their estate will be responsible for the debts.
Any beneficiaries named in a will also won’t be liable for any debt. However, the amount they receive from the estate will be lesser after funeral costs and debt payments such as unpaid taxes, credit card bills and utility bills are settled.
How are debts settled when someone passes on?
Debts are paid off using the value of the estate by the deceased in order of importance.
The value of the estate is the total amount of money one has in savings, investments, assets or cash. These will be used to pay off funeral costs and any debts by the deceased.
Secured debts such as properties or cars are settled first, followed by funeral costs and administration charges. Any unsecured debts that had not been paid off will be settled lastly.
If the value of the estate is insufficient to pay off the debts, the debts will normally be written off by the creditors. However, it is best to consult with a solicitor or probate specialist on this matter.
Information courtesy of https://www.aviva.com.sg/en/money-banter/2019/what-happens-to-debt