What happens to my debt when I die?

When you die, your debts are paid out of your estate. Everything you own and everything you owe forms a deceased estate, which is reported to the Master of the High Court and administered by an executor under the Administration of Estates Act 66 of 1965. The executor collects your assets, advertises for creditors, pays what is owed, and only then distributes what is left to your heirs. Your heirs do not inherit your debt personally. If the estate is not big enough to pay everyone, the creditors take what there is and the heirs receive less, or nothing, but no creditor can pursue your children for the balance.

There are two important exceptions. A surviving spouse married in community of property is liable for the debts of the joint estate, because those debts were always shared. And anyone who signed surety for you, or borrowed jointly with you, remains liable in their own right.

How debts are dealt with in a deceased estate

Reporting. Within a short period after death, someone close to you must report the estate to the Master of the High Court. Our guide on reporting a deceased estate to the Master explains the forms.

Appointment. The Master appoints an executor, usually the person named in your will, or for smaller estates a representative under a simpler procedure. The executor takes control of your bank accounts, property and other assets.

Notice to creditors. The executor advertises in the Government Gazette and a local newspaper calling on creditors to lodge claims within a set period. Credit providers, the bank that holds your bond, SARS and anyone else you owe must submit a claim.

Liquidation and distribution account. The executor prepares an account listing the assets, the claims and the proposed distribution. Funeral and administration costs and the executor's fees are dealt with first. Secured creditors, such as the bank holding a bond over your house or a lien over your car, are paid from the proceeds of the asset they hold security over. Other creditors are then paid from what remains. Only after that are heirs paid.

Solvent or insolvent. If the assets exceed the debts, the estate is solvent and the heirs receive the balance. If the debts exceed the assets, the estate is insolvent. The executor may administer it under the insolvency provisions, creditors are paid a proportion of what they are owed, and the heirs receive nothing. The shortfall is not passed to anyone, other than a spouse in community of property or a surety.

A worked example

Take Pieter, who dies leaving a house worth R1 200 000 with a bond of R650 000, a car worth R180 000 with R120 000 owing on finance, a credit card balance of R45 000 and a personal loan of R80 000. He has R60 000 in savings. He is married out of community of property and has two adult children.

The executor reports the estate, advertises for creditors and gathers the claims. The bank holding the bond is a secured creditor. Pieter's family wants to keep the house, so the executor arranges for the heirs to take over the bond by agreement with the bank, subject to the bank's affordability checks. The car finance agreement had credit life insurance, so the insurer settles the R120 000 and the car passes to the estate unencumbered. The personal loan also had credit life cover, which settles it. The credit card had no cover.

That leaves the credit card balance of R45 000, funeral costs, the Master's fees, executor's fees and estate duty if the estate is large enough to attract it. These are paid from the R60 000 savings and, if that is not enough, from the sale of assets or a contribution the heirs choose to make to avoid a sale. The children inherit what remains. They are not liable for any shortfall. The executor fees and estate duty calculator will help you estimate the administration costs. These figures are illustrative only and your own estate will differ.

What to do this week

If you are planning ahead. Make a list of every debt, the credit provider, the account number and whether the agreement has credit life insurance. Put it with your will. Check whether your bond, vehicle finance, personal loans and credit cards have cover, and who the beneficiary is.

If someone has just died. Do not pay any of their debts from your own pocket, and do not agree to take over any debt until you have spoken to the executor. Report the estate to the Master. Notify each credit provider in writing that the account holder has died. Ask each credit provider whether the agreement has credit life insurance and how to claim. Stop debit orders from the deceased's account only once the executor has control, because some payments, such as the bond and insurance, may need to continue.

If you are being pressured. Credit providers and collectors sometimes phone family members and imply that they must pay. They must not. Tell them the estate has been reported, give them the executor's details, and refer any further contact to the executor.

Documents to gather

• The death certificate and the deceased's ID.
• The will, if there is one.
• The most recent statement for every debt: bond, vehicle finance, credit cards, store accounts, personal loans, microloans, SARS, municipal accounts.
• Every credit life, funeral and life insurance policy, and the credit agreements themselves, because cover is often written into the agreement rather than issued separately.
• Bank statements for the last three months, which reveal debit orders and unknown debts.
• A credit report from a registered bureau, which the executor can obtain and which lists accounts.
• The marriage certificate and antenuptial contract, if any, because the marital regime decides whether the surviving spouse shares the debts.

A realistic timeline

Weeks 1 to 2. The estate is reported. Credit providers are notified. Credit life claims are lodged.

Months 1 to 3. The executor is appointed. The advertisement for creditors runs and claims come in. Insurers assess the credit life claims.

Months 3 to 9. The executor values assets, resolves the bond and the car, and prepares the liquidation and distribution account.

Months 9 to 18. The account lies for inspection, creditors and heirs may object, and the executor then distributes. Our guide on how long it takes to wind up an estate has more on the stages.

Common mistakes and what they cost

Family members paying the deceased's debts personally. Money paid by a child or a spouse who was not liable is very hard to recover. If a credit life policy would have paid the debt, the family has paid twice.

Not claiming on credit life insurance. Cover is often bundled into the agreement and forgotten. An unclaimed policy means the estate pays a debt an insurer should have paid. Ask every credit provider in writing.

Continuing to use the deceased's cards or accounts. Drawing on a deceased person's account after death, even to pay the funeral, causes problems with the executor and the bank and can be treated as unlawful.

Taking over the bond without checking affordability. An heir who takes over a bond takes over the full debt. If the instalment is unaffordable, the house is at risk again within months.

Assuming an insolvent estate means the family owes the shortfall. It does not, unless the marriage was in community of property or someone signed surety. Collectors who suggest otherwise are misleading you, and the Council for Debt Collectors takes complaints about that.

Your family's rights and the creditors' rights

Your heirs are entitled to have the estate administered properly, to see the liquidation and distribution account, to object to a creditor's claim they believe is wrong, and to be free of personal liability for your debts. A spouse married out of community of property is entitled to keep their own assets separate from your creditors. A surviving spouse and minor children may also have a claim for maintenance against the estate, which our guide on claiming maintenance from a deceased estate explains.

Creditors are entitled to lodge claims, to be paid from the estate in the order the law sets, to enforce security over a house or car if the debt is not settled, and to pursue a co-borrower, a surety or a spouse in community of property. They are not entitled to pursue heirs who were not liable, to demand payment from family members, or to keep charging interest and fees the agreement does not allow. The Prescription Act 68 of 1969 continues to run against a claim that is not lodged, so a creditor that sleeps on a claim can lose it.

If you cannot afford an attorney

Most estates with modest assets and ordinary debts are wound up without an attorney. The Master's office assists with smaller estates, and an executor need not be a lawyer. Our guide on whether you need an attorney to wind up an estate sets out when professional help is worth it.

If a credit provider is treating a family member as liable for a debt they did not sign, the National Credit Regulator on 0860 627 627 and the Credit Ombud within the National Financial Ombud Scheme South Africa both take complaints at no cost. If a collector is harassing the family, the Council for Debt Collectors regulates collector conduct. If an insurer rejects a credit life claim, the National Financial Ombud Scheme handles insurance complaints too. Small disputes about money paid that was not owed can go to the Small Claims Court. Legal Aid South Africa on 0800 110 110 can tell you whether you qualify for help, and our legal aid page explains the means test. Our page on what debt and credit matters cost sets out what professional help costs.

Frequently asked questions

People often ask whether their children will have to pay their credit card. No. The card is a debt of the estate. If the estate cannot pay it, the credit provider writes off the balance. The children are not liable unless they were joint account holders.

They ask what happens to a bond when the borrower dies. The bank remains a secured creditor. The estate can sell the house and settle the bond, an heir can take over the bond with the bank's agreement, or credit life insurance on the bond can settle it. What does not happen is the bank simply taking the house without going through the executor.

Finally, people ask whether a spouse married in community of property can protect themselves. The joint estate is one estate and its debts are shared, so the surviving spouse's half is exposed. Credit life insurance on the major debts is usually the most practical protection.