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Managing Debt After Loss: Essential Tips for Financial Recovery

Having a loved one pass away is difficult at the best of times, but it can be made even harder when the loved one has left behind significant debt. This can be complicated to deal with. It helps if you know how South African law treats the debt of deceased persons. 

Let’s take a quick look at some of the things you need to take into consideration so that you can best manage the repayment of a loved one’s debts after they have passed on.

Who Is Responsible For Paying The Debts?

Generally, the deceased’s debt is their responsibility alone and does not fall to the heirs, unless in certain specific circumstances. All assets and liabilities will be transferred to the deceased estate upon their death, which means that all outstanding debts will be paid out of the proceeds of the estate. 

Whatever cash there might be available will be used to pay off debts, and any outstanding debts will be paid from the liquidation of assets. Should there be no money left after this, the remaining debts will be dissolved and will not pass on to the heirs. 

The only time that an heir might inherit a deceased loved one’s debt is if they had co-signed on the debt before the deceased passed, if the assets in the deceased estate were distributed to the heirs before the debt could be resolved, or if those assets were already attached as collateral in secured debts prior to death. In such cases, those assets might need to be repossessed or liquidated to resolve the debt. 

Outside of those specific circumstances, debts will usually be paid out of the deceased estate, and the bereaved will thankfully not have to be responsible for them. 

What To Keep In Mind When Executing The Deceased Estate

Hopefully, the deceased will have had a properly drawn-up will that includes trusts and the power of attorney to manage assets and debts in the correct manner.

As part of this process, all assets and liabilities of the deceased estate will be drawn up and recorded in what is called a liquidation account

When the deceased passes, creditors will be given the opportunity to claim any outstanding debts, and the executor of the estate can proceed to settle all legitimate debts by liquidating assets or using cash funds as needed. 

The key thing here is that debt settlement is done in order of priority, with tax debts settled first. Thereafter, bond-holding banks will be repaid, and other debts will follow.

Any kind of death benefit given by employers, as well as pension funds and life insurance policies, will be disbursed directly to the beneficiaries (the bereaved). The good news is that these funds won’t be attached to the repayment of any of the deceased’s debts. 

However, beneficiaries can choose to use them as they see fit, with some choosing to repay the deceased estate’s debts to preserve certain prized assets from being liquidated, such as family homes and other sentimental items that they might wish to keep. This is a discussion that every family might have, and it is solely up to the beneficiaries’ discretion to decide how to deal with such circumstances.

Ultimately, it is important for beneficiaries and heirs to know their rights when it comes to the debt repayment process of a deceased loved one, as some credit and debit collection agencies will seek to demand repayment from beneficiaries even when it is not the beneficiary’s responsibility to do so. 

If you’re unsure, it is highly advisable that you seek legal counsel to protect not only yourself but also the legacy of the deceased.

Dealing with the affairs of a deceased loved one can be difficult and complex. Get help to sort out the debt burdens that may have been left behind so that you can move forward with financial freedom and be able to truly cherish their memory. Contact us at Zero Debt today to get the process started.