When you are trying to organise your affairs, you may be concerned about what is going to happen if you die with any secured debts. Whether you die unexpectedly or you have had plenty of time in order to make provisions, you could still wind up with secured debt that needs to be paid off. So what happens if you die with secured debts?
Against Assets
Secured debts are debts that have been created whilst being secured by an item or an asset. If the asset is something such as a valuable antique or an expensive item of jewellery, then the debt is much easier to deal with than if the debt is secured against something like property. However, it is much more common for property to be used as collateral in the cases of secured debts, which can lead to some very complicated situations, especially if the deceased does not own the property outright.
Before the value of an asset can be calculated, the amount of the asset that the deceased owned needs to be assessed.
Jointly Owned Property
In a situation where a property is jointly owned, by a couple in a marriage or civil union, for example, where 100% of the property is owned by both parties, then the property automatically passes to the other party without any form of valuation being done. In this situation, the property isn’t part of the estate and cannot be sold in order to pay off any outstanding debts that the deceased may have. The surviving partner will have to take over any loan or mortgage repayments on the property though. If that is the case, that debt will not have to be discharged from the estate as the responsibility has already passed to someone else.
If property is jointly owned, but each party both owns a set percentage of it (say a 45% to 55% split) then the deceased’s share of the property will be taken into account when repaying any secured debts. If the surviving party cannot buy the deceased’s share or find a new buyer to take over the deceased’s share of the property, the property might have to be sold in order to pay off the debts of the deceased.
If jointly owned possessions, rather than property, have been used to secure a loan, they do not form part of the estate and cannot be taken into account when paying off the debt. However, if the asset is owned outright by the deceased, even if other people have free access or use of the asset, it forms part of the deceased’s estate and can be used to pay off any outstanding debts the deceased may have.