Assets are sold to pay the debt, and if there are any liens or guarantees by third parties (like a rich uncle or a parent may have co signed a loan or put one of their assets up as collateral..) then those avenues will be pursued. If a person leaves something in their will that has been used as collateral against a loan and it is not paid off, (the item is not free-and-clear), if other financing for that capital item is not organised in a timely manner, it will be foreclosed on or repossessed by the financial institution owed the money.
One of my jobs at the accounting office was watching the bankruptcy and death notices. Who was being ‘wound-up’ or put into receivership was of intense interest to our partners.