Have you ever thought about the effects of debt and death to your family? Both of them are dreadful but if you combine them, it could be a lethal combination.

According to the data published on the HKEconomy.gov, the household debt in Hong Kong reached HK$1,571 billion by the end of September 2015. The data revealed that this is already equivalent to 70% of the GDP in Hong Kong in 2014.

The bulk of the debt is mortgage loans – which is not surprising because of expensive real estate prices in this region. Home loans are actually 71% of the total debt in Hong Kong. Personal loans came in next at 22% and credit card debt comes in at 7%.

The data revealed that the household debt grew by 11% compared to the same period in the previous year. This is evidence that consumers are quite confident in borrowing money – which can both be a good or bad sign.

On a positive note, credit confidence is an indication that the financial situation of households in Hong Kong is gaining strength. This is especially true if you consider the fact that the bulk of the debt is caused by home buying. But on a negative note, the high load of debt puts the average household under a lot of financial stress.

Paying off debt may not seem like a big problem as long as you can afford to pay it back. But what happens if the person who borrowed the money and is responsible for paying it back, suddenly dies? What happens to the debt that is owed? With all the debt going around, this is not an unlikely scenario in a typical household in Hong Kong.

Effects of Debt and Death: What Happens When a Loved One Passes Away With Debt?

What happens to debt when a parent or spouse passes away?

Debt and death can both leave devastating effects on the family. Too much debt can ruin relationships and the future of the family. Death is also something that can cripple a family – especially if the person who died is someone vital to the survival of the family (e.g. breadwinner, sole earner, etc).

If the person who died had carried debt, those left behind should naturally be worried about their own futures. The loss is devastating beyond words – but the debt that was left makes the situation a lot worse.

So what happens to debt when your parent or spouse passes away?

Apparently, you cannot inherit debt from your parents or spouse – unless you signed it. If you signed a loan or debt as a co-signer or guarantor, you are equally responsible for the debt. You will naturally inherit it and the creditor or lender will come after you and expect you to continue paying off the debt.

But if you did not borrow that money, you cannot be held liable for that debt.

Can debt and death affect your inheritance?

If the one who passed away has an estate or left you some money, creditors and lenders can come after that.

The Community Legal Information Centre gave a couple of insights about what happens.

Before the executor or the administrator of the Will can distribute the estate or assets of the deceased, they must pay off any unpaid debts or taxes owed. Not only that, they have to fund other expenses like the funeral costs, etc. Once all of these are paid off, that is the only time that the estate and assets will be distributed.

Take note that the debt of the deceased can be incurred even after their death. For instance, if they met their demise before a credit card billing statement arrived, they will owe that credit card debt as long as they used it.

If the creditor failed to get payments from the executor or administrator of the Will, they can go after you – as you are a beneficiary of your loved one.

This is how it will go:

  • They will first initiate a probate search through the Probate Registry. This will help them find out if the debtor left anyone their estate or assets.
  • If the creditor finds that a Grant was issued, they can obtain a copy of that Grant from the court. This will help them identify the executor or administrator of the deceased debtor’s estate.
  • Once they get in touch with the executor or administrator, they can take legal action to get a part of the inheritance from you.

This legal action means the court will decide if you need to pay it back or not.

If your parent or spouse did not leave a will, you may receive a portion of their estate and assets. If you are the spouse, you will be the priority when it comes to the distribution. That means you will most likely be the one the creditors will come after for the debt of your spouse.

If you are the child, it will depend on how old you are. If you are still a minor, your inheritance will be placed in a trust. The creditor may be able to come after that if the court rules in their favour. If you are old enough, the estate and assets will go to you and the creditor can still come after that to pay off what is owed to them by your deceased parent.

Although it is not your obligation to pay off the debt of a loved one, you may want to consider carefully if you should pay off the debt or not. If the inheritance is something that you can afford to lose, then go on ahead and make a deal with the creditor. You can probably pay only a portion of the debt and have the rest forgiven.

Make sure to consult a lawyer before you make a move. Do not compromise your inheritance because you were feeling guilty over financial transactions you had no part in.

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