It’s a terrible topic to talk about, but it’s essential to know what happens to debt after someone dies. Truthfully, every Singaporean and individual in the world will be paying debts until the last breath. If you don’t have any individual debt, the collective national debt — which we pay through taxes — is still debt we have to pay.
Many misconceptions about debts in Singapore exist. For example, it’s true that lenders will forgive your debt upon your death. However, this isn’t true in most cases due to some caveats you need to know about. If you’d like to take care of all your financial responsibilities before death, here are a few things you need to know.
All Is Forgiven Upon Death
You’ve heard from banks and lenders that a deceased person’s debt is something they forgive and wipe completely upon their debt. On all accounts, this is true. When a person dies, banks will forgive all their unfinished dues.
If these are all individual transactions, such as credit cards, personal loans, and other unsecured debt, family members, friends, and colleagues need not pay the debt back. In this context, family members have no legal responsibility to pay the debts.
Exceptions to Debt Forgiveness Post-Mortem
However, a deceased person’s loved ones or partners might have to deal with their outstanding debts upon death in some specific cases. Honestly, these particular situations are common in Singapore.
Loan repayment terms and conditions always touch on one common denominator: everyone who is responsible for paying debt should pay it. Therefore, if your father and mother signed for a joint loan on your property, your mother will continue to pay for it even if your father becomes deceased.
If someone dies between two co-signees, the remaining co-signee will have to shoulder all the debts. The debt’s total principal and interest fees do not change. However, if the loan’s terms and conditions state that the deceased person’s loan share, which can be 50% for two co-signees of the same loan.
However, it’s not far for banks to consider re-negotiating payment terms if the principal and interest fee does not change by the loan term’s end. On the other hand, this is upon your bank’s discretion.
Joint Account Holders
A deceased person’s debt using a joint account credit card or revolving credit remains, even if they’ve died. Unfortunately, the bulk of repayment responsibility lies with the surviving account holder.
Your bank may transform your fund into a single credit card, revolving credit, or individual bank account. However, this transformation has a few disadvantages, such as changing your credit limit and annual fees according to your credit rating and the new account type’s terms and conditions.
Anyone Living in an Unpaid Estate
Beneficiaries become a deceased person’s debt successor upon their debt by virtue of utility. For example, if your aging parents opened a joint payment account to fund your existing property, you will inherit the joint payment account’s remaining balance.
However, if the borrowers did not cite you as a beneficiary, your debt succession will not be voluntary. One example: if your uncle died and has failed to pay the property completely, you’re not obligated to pay for the property even if you lived in it. However, banks or lenders can liquidate the property or re-sell it.
Paying Debt Obligations After Death
Now that you’ve seen who handles the debt upon the borrower’s death, here are a few things to help you learn the methods of lenders in receiving payment for the forgiven debt without involving the deceased.
Truthfully, these methods are legitimate. However, like debt forgiveness after death, lenders can only liquidate the deceased’s assets to a point, especially if surviving co-signees are legally responsible for paying back their financing. In virtually every case, lenders can only liquidate collateral assets the borrower has used to secure a loan.
Last Will and Testament
These final wills and testaments aren’t dramatic moments on soap operas. They’re practical legal tools that keep the assets and surviving family and friends of the deceased from lenders.
In a borrower’s last will and testament, they can give their debt inheritances to select family members. For example, a father can leave his entire business, along with its debt, to the eldest child in his family. In doing so, this child will answer to lenders.
Additionally, borrowers can appoint their property executors to appraise and liquidate their estate or assets before lenders. In many Singaporean debt forgiveness cases, if someone dies, their executor will work with their lenders directly to resolve their debt, not their family members.
Lender-Executed Property Liquidation
If the borrower’s family aren’t legally inclined to pay for their debt, lenders can assign an executor to liquidate any assets that are of value and merit to lenders. However, the person’s estate cash value is of top priority to repay the lender.
A borrower’s estate are the following:
- Investment profits or company shares
- Businesses or other earning assets
- Secondary Property (cars, furniture, appliances, and anything of value)
- Remaining individual bank account value
If the borrower did not appoint an executor on their last will and testament, the lender’s appointed executor will prioritize their interest before distributing the remaining wealth or money to the deceased’s family.
Initiating Debt Payments for Co-signees and Joint Account Holders With Deceased Members
It isn’t difficult to start paying any dues your co-signee or joint account holder still owes. To initiate debt forgiveness or recalibration with lenders, you’ll need to undertake the following steps.
1. Contact Lenders
Talk to your lender and tell them about your co-signee or joint account holder’s death. In the event you’re a non-obligatory party, you can call the lender to deactivate the deceased’s account to avoid further accumulation of interest fees and penalties.
Take note that once you’ve accomplished the report, the lender will take the next steps to debt forgiveness or recalibration. They may initiate an executor immediately. However, they will inform you, as immediate family or informing friend or colleague, that they will start the process on a specific date.
2. Investigate and Claim Insurances
If you’re a co-signee or joint account holder with the deceased, you can use certain insurance policies and safeguards to avoid taking on added penalties due to missed payments as repayment recalibration takes place.
If a borrower dies, and they haven’t finished paying their mortgage, mortgage protection insurance can pay for a significant sum of the amount. The case is the same for credit cards, car loans, and other loans: if it has payment protection insurance that cites an “upon death” benefit, the lender will collect the benefits as they are the legal beneficiaries.
Without this insurance, lenders can only liquidate assets legitimately acting as collateral on the deceased person’s behalf.
4. Joint Debts
Some insurance companies allow joint debtors to have immediate debt relief. These products enable a surviving debtor to become responsible for paying the debt while allowing the deceased to have their share fully paid thanks to this particular insurance policy.
In some cases, lenders can forgive the deceased borrower debt without any payment insurance. However, recalibration or readjustment of terms to suit the surviving account owner is often the default course of action.
The primary goal of estate executors is to pay all the lender’s debt by liquidating all their assets completely. However, surviving debtors of co-signed or joint accounts should execute the deceased borrower’s estate to prevent accumulating immense damages, such as the following:
- Mortgage Repayments – These have the highest interest rates out of all financial commitments. Additionally, it has enormous principals to pay back.
- Income and Council Tax – Income and council tax have high interest rates, making them the executor’s secondary priority.
- Utility Bills, Credit Cards, and Pending Loan Repayments – In most cases, financial institutions forgive all these remaining debts. However, if the debt amount proves to be substantial, lenders are highly likely to appoint executors for property liquidation.
Getting Help For Difficult Financial Situations
If you’re a co-signee or joint account holder who’s struggling to pay back the huge debt or money you’ve incurred with a deceased individual, call upon a charity group that provides financial advice and service. Most of them offer debt consolidation and management services, allowing you to negotiate with your lender and work out a suitable payment plan.
Truthfully, most lenders are willing to aid co-signees and joint account holders who need to deal with an additional burden they can’t pull on their own.
Exceptions to Lender-Initiated Liquidations
Executors can use and liquidate all the deceased borrower’s assets to pay back lenders. Lenders can use any of the deceased collateral and property within the terms and conditions they had with the borrower. We mentioned collateral to be any residential or commercial property, business, secondary assets, and other items of value as items executors can liquidate and lenders can collect.
However, they cannot take the following assets of the deceased.
- Retirement Accounts – CPF contributions the borrower has made are off-limits to lenders. The immediate family and appointed beneficiaries are the only parties who can claim them.
- Unsecured Debts – Most lenders forgive personal loan, credit card, and overdraft debts. Additionally, these are unsecured loans and often have a form of payment protection insurance that pays lenders back.
- Life Insurance – Beneficiaries of life insurance plans, like CPF, are the only ones who can claim these benefits.
Fiscal Responsibility Is Everyone’s Job
As we mentioned above, everyone has debts to pay by the time they’re born. Plus, loans and debts are necessary for making investments or owning your own house or flat. To avoid drowning in debt, always make the wisest decisions for your financing.
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