Secured and unsecured debt

What it means

A secured debt is tied to property — a mortgage on a house, a loan on a car. The lender's rights follow the property, so the debt does not disappear because the borrower did.

An unsecured debt is not tied to anything: credit cards, medical bills, personal loans. It is a claim against the estate and nothing more.

Where an estate cannot pay everything, state law sets an order of priority. Unsecured creditors are usually near the end of it.

Why it matters

It answers the question families ask first: do I have to pay this? Generally the estate pays, not the family — but a house with a mortgage is a different question from a credit card.

It also decides whether keeping an asset is possible. Inheriting a car with a loan on it means inheriting the loan's claim on the car.

When you are likely to meet it

• When bills continue to arrive after a death.
• When deciding whether to keep or sell a house or a vehicle.
• When the estate does not have enough to pay everyone.

How this varies by state

The order in which an estate's debts must be paid is set by state law.

Related terms

• Creditor claim periodThe window, set by state law, in which somebody owed money by the estate has to present the claim or lose it.
• EstateEverything the person owned at the moment they died, treated as one thing that has to be settled.
• Fair Debt Collection Practices ActThe federal law limiting what a debt collector may do — including who they may discuss a dead person's debt with.
• Home Equity Conversion MortgageThe federally insured kind of reverse mortgage. What happens to the house after the borrower dies is set by its own rules.
• Homestead exemptionA protection for the family home — from creditors, from being sold to pay debts, or as a right for the surviving spouse to keep living there.
• Insolvent estateAn estate that owes more than it holds. State law then decides who gets paid, in what order, and who gets nothing.
• LienA recorded claim against property, securing a debt, that has to be dealt with before the property can be transferred cleanly.
• Lien releaseA document from a lender confirming a loan is paid off, so the lien can be removed from a title.
• LienholderThe lender recorded on a vehicle's title as having a secured interest in it.
• Notice to creditorsA formal announcement that an estate has been opened, which starts the clock on how long anyone owed money has to say so.
• Priority of claimsThe statutory order in which an estate's debts are paid. Paying out of order is the executor's own liability.
• RepossessionA lender taking back property that secures a loan, when the payments stop.
• Spendthrift clauseA term in a trust preventing a beneficiary from selling or pledging their interest, and preventing their creditors from reaching it.
• Tenancy by the entiretyA form of joint ownership available only to married couples in some states, with survivorship and unusually strong protection from one spouse's creditors.
• Title searchA check of the public record for what is registered against a property or a vehicle — owners, liens, brands, claims.
• Vacant and unoccupiedTwo words an insurer uses differently, and the difference can void the cover on an empty house after a death.

Sahvelo guidance that uses this

• Debts after a death
• Inheriting a mortgaged home