Understanding what happens to any debt someone leaves after their death is essential. If the person managing the estate (the personal representative/s, i.e. the executor/s or administrator/s) fails to understand the different types of debts and what happens to them, leaving them at risk could mean the person managing the estate (the personal representative/s, i.e. the executor/s or administrator/s) risks of personally inheriting the debt and becoming responsible for paying off all debts of the deceased person. They risk personally inheriting the debt.
It is a commonly held misconception that debts die with the deceased person. This is not the case. There is a clear, strict order of priority of payment of debts, and the debts must be paid before any money is paid out to any beneficiary. If this order is followed, then there is no personal liability on the person/s administering the deceased person’s estate.
In many cases, any debts are quite small in relation to the estate’s value and will present no difficulty to the personal representative. However, if there are many debts, some are secured (e.g. a mortgage on a property). It seems possible that there may not be enough money in the estate to pay all the debts, i.e. the estate may be insolvent. The personal representative should proceed with extreme care before doing any work on the estate at all. Please read all of this section before considering the options that are explained below. It is especially important to be aware that if a family member pays for the funeral with their own money, it may be difficult to recover this money from an insolvent estate.