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Before anything from the estate can be distributed to the beneficiaries, the deceased's debts need to be paid from the estate. This is the case whether or not probate or administration was needed.
There are two types of debts:
Secured debts are attached to a certain asset. For example, a home loan is secured against a property.
If the debt is secured, it is important to maintain repayments or talk to the creditor about your options otherwise the creditor may take legal action which may include taking possession of the asset and selling it.
If a beneficiary has been given an asset with a secured debt, and the beneficiary wants to keep the asset, the beneficiary must also deal with the debt which is secured against the asset. The debt must either be repaid or refinanced before the asset is transferred to the beneficiary.
Unsecured debts are debts that are not attached to any particular asset. For example, credit card debts or personal loans.
Unsecured debts in the deceased's name only will usually be paid from money in the estate. However, if there is not enough money, property may need to be sold to pay the debt. If there are not enough assets in the estate to pay the debt, you may need to consider contacting the creditor to let them know that the debt cannot be repaid and ask for it to be 'written off'.
If the debt is more than $5000 it is possible for the executor, next of kin or creditor to bankrupt the estate.
If you are the beneficiary of superannuation death benefit or life insurance, you are not required to pay debts owed by the estate from these payments.
Before you pay any debts owed by the deceased, you should get