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Can Debt Be Inherited in Australia?
- Oxcel Finance
- December 31, 2023
While an untimely departure of a loved one comes with immense strain on the heart, it can also arrive with an equally distressing financial burden. Debts left behind by your parents, spouse, or any other member of your family can fall on you, making an already stressful time unbearable.
That’s why it’s always a good idea to stay prepared ahead and know what’s coming towards you.
Now, a straight ‘yes’ or no answer to the question “Can debt be inherited in Australia” is not possible as it’s much more complicated than that.
To get a comprehensible answer that covers all the concerning areas, you’ll need to do your research. Worry not; I’ve already done it for you.
So, without further ado, let’s get into the nitty-gritty of it and try to answer the question, “Can debt be inherited in Australia?”.
Is It Possible for You to Inherit Someone’s Debt?
Generally speaking, it’s very much possible for you to inherit someone’s debt. However, there are many ‘ifs and ‘buts that go into the equation. The most important of them is that being someone’s next of kin alone doesn’t make you liable for the debts they left behind.
Usually, the outstanding debts are paid with the deceased estate. An estate is everything a deceased person leaves behind, including their money, property, and superannuation death benefits.
In the case of secured debt, the creditor will reclaim what he’s owed through the collateral. With unsecured debt, however, the estate manager might be forced to sell assets to repay the outstanding debts.
Guarantor Loans
Getting yourself involved in a guarantor loan is one of the few ways of inheriting a debt. A guarantor loan is a particular kind of loan where someone needs to stand as a guarantor for the approval of the loan.
Usually, applicants who’re more on the younger side with little to no credit score need a guarantor to get their loans approved.
That being said, you can stand as a guarantor for almost any kind of loan for anyone you please. If you do so, you’ll be liable for the debt if the original applicant fails to make the necessary repayments or meet the necessary obligations.
What usually happens is that if the person who took out the loan dies, the lender will seek repayment from you as a guarantor. In this case, if you put your home equity as a deposit, you might end up losing a part of your property.
Joint Accounts
Another more common case of inheriting a debt can be traced back to having joint accounts. The lender of the deceased may come knocking at your door if you’re a joint account holder with the deceased person.
For instance, if your partner with whom you had a joint account dies, his or her estate will pay as much as possible of the debt. If somehow the estate proves inefficient to cover the entirety of the debt, then you’d have to pay for the remaining balance.
However, talking to your estate attorney to know the details regarding your residential loan and what will happen in the event of your partner’s death is always a good idea.
You’d also want to take into account other assistance that you might receive, such as life insurance.
Which Loans Are Forgiven at Death?
According to the law, the estate executor needs to prioritize the debt payments. This means any property or asset left behind by the deceased will be used to pay off debts in order of priority.
For instance, as it’s of the highest priority, the estate will first pay off tax debts and the rest after that.
However, if an estate is unable to pay off the debts left behind by the deceased, then the estate becomes insolvent. If such a thing occurs, it’s entirely up to the creditor whether they’ll offer debt forgiveness or not.
The right course of action in such a situation would be to seek legal aid from a professional law firm and know your options.
Final Thoughts
The loss of a loved one is a struggle on its own without having to think about the debts left behind by the deceased. Inheriting debt at such a time can not only be a cause of additional stress but also leave you in a financial pickle.
Not to mention the fact that you’re more like to make a mistake in such a horrible frame of mind.
If you find yourself in such circumstances, it’s always right to do your research along with seeking professional help. Hopefully, by now, you’ve got a clear understanding of the matter and the answer to the question, “Can debt be inherited in Australia?”.
So, don’t forget to read this article again if you do face such a situation in the future.
