Dealing with the loss of a loved one is not only emotionally distressing , it can also take a toll on family finances.
Here's some information to help you deal with debt essentials during this difficult time.
What types of debt could be left behind?
A secured debt is essentially a type of loan that’s guaranteed by collateral (eg a house or car). As secured loans provide less risk to the lender, the rates you'll get as a borrower are usually lower than on an unsecured loan.
Types of secured debts include mortgages, car loans and some personal loans. If someone passes away, these will be the first type of debt that needs to be settled.
An unsecured debt refers to money that’s borrowed without any kind of collateral or guarantee behind it.
Types of unsecured debt include credit cards, overdrafts or even utility services. As the risk to the lender is higher, you'll usually pay a higher interest rate on these types of debt.
Who’s responsible for paying off the debts?
Where a debt is held jointly (eg a joint mortgage) or where two or more people are named on the credit agreement, the other parties will still be responsible for paying the total amount of the debt. So if you have a joint personal loan or mortgage with your spouse and one of you passes away, the other party will have to take on the deceased person’s debts. And if the deceased person had bequeathed a property with a joint mortgage on it, the person who inherits it will be responsible for that debt and would have to pay off the debt to maintain control over the property or get a new home loan.
So, if you find yourself suddenly being liable for the deceased person’s debt because of a joint mortgage or because you’ve inherited a property with a joint mortgage on it, the most important thing to do is notify the companies you've borrowed from as soon as you can. Ask them for a breakdown of the amounts that still need to be paid and work with them to understand how to repay the outstanding amount.
If a debt is only in one name, then it’ll usually either be settled using money from the deceased person’s estate or written off if there aren't sufficient assets to pay off the amount. In Singapore, surviving family members are not responsible for such debts left by the deceased. So, if your spouse has passed away and the debt was only in their name, you won't inherit the debt as their estate will be liable for the debts.
Any beneficiaries named in a will also won't inherit any debt (although any amount they receive from the estate will be reduced after funeral costs and debt payments such as unpaid taxes, credit card bills and utility bills are settled).
How are debts paid off when someone dies?
Usually, debts are paid off using the value of the estate in order of importance.
The value of the estate is the total amount of money an individual has in savings, investments, property, possessions or cash. The value of the estate of will be used to cover funeral costs and any debts the person had that can be settled.
Secured debts like mortgages are paid off first, followed by funeral costs and administration fees. Lastly, any unsecured debts need to be covered.
If the value of the debt is more than the value of the estate, these will usually be written off by the creditors, but it's a good idea to consult with a solicitor or probate specialist on this.