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What Happens Debts After Death?

What Happens Debts After Death?

by programmerNovember 26, 2015

We all carry debt at some points of our lives. Sometimes, you just aren’t able to pay them off before you pass away. You may die accidentally, die from illness, or die from old age without fully polishing off your debt. You won’t get bogged down by them when you die, of course – but what about your family?

Your Net Worth

Legally, your assets will be used to pay off your outstanding debt before any remaining balance gets distributed to your intended recipients, or beneficiaries. Before all that, though, your net worth will have to be determined.

If your total debt is worth more than your total assets, you have a negative net worth and is considered insolvent, and while your debts won’t get passed on to your beneficiaries except in certain cases, they won’t be receiving your assets either as they’ll be used to repay your debt.

If your estate is worth more than your debt, you have a positive net worth, and your estate will pass on to your beneficiaries as dictated in your will once it’s been used to repay your debt.

Whether you’re Muslim or non-Muslim, learn how your estate will be passed to your beneficiaries and what will happen if you don’t have a will (intestate) here.


Who can recover your outstanding debt from your assets? As it turns out, there are quite a few parties who are legally allowed to get their hands on your estate before your beneficiaries do. They include but are not limited to:-
– personal or business loan under your name
– auto loan under your name
– student debt under your name
– credit card debt
– your final income tax as calculated by the Inland Revenue Board (IRB)


On the flip side, there are certain situations in which your beneficiaries may inherit your outstanding debt upon your passing. There aren’t many of them, but they include the following:-
– a loan which the beneficiary co-signed
– guaranteed debt of which the beneficiary is a guarantor

What Happens if the Deceased is Intestate?

If you’re a Muslim, your estate gets divided according to the Syariah law, but only after your funeral expenses and debts have been cleared off.

If you’re a non-Muslim, your estate gets divided according to the Non-Muslim Inheritance Law. This means that your estate will go, in fixed percentages, to your parents, your spouse, and/or your issues (descendents and their offspring), failing which it’ll go to your siblings, your grandparents, your uncle and aunts, your great grandparents, your great granduncles and grandaunts, or the government, in that order of priority.

What You Should Do When a Testate Passes Away

If you are the executor of the testate’s will, this is what you must do:
– Locate the will
– Make funeral arrangements
– Apply for a Grant of Probate
– Assemble, protect and insure all assets of the estate
– Pay off debts and liabilities of the estate
– Pay the testate’s income taxes
– Inform the IRB and state all assets of the estate
– Publish about the estate’s passing in the official Gazette of Malaysia to notify debtors to collect their debt from the estate’s assets (failing which, the debt is to be borne by the executor)
– Prepare and complete a detailed accounting
– Distribute assets of the estate according to the will


It’s good to know that you won’t be saddling your loved ones with your debt when you die. If you’re still worried about complications, write a will and try to decrease your debt as fast as you can to protect the willed assets that you leave behind.

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