Understanding debt after death – a guide for families and relatives

The time after a bereavement can be difficult, especially if you’re also responsible for dealing with the finances. This guide will explain:

  • What happens to debt when someone dies
  • Who pays the debts
  • How to pay off the debts
  • The types of debt you may deal with
  • Where to find support

What happens to debt when someone dies

When someone dies, they may leave behind debts. These are paid out of the estate left by the person who passed away. Debts could include:

  • Car loans
  • Credit card bills
  • Mortgages
  • Overdrafts
  • Personal loans
  • Student loans

Debt in the UK

Data published in January 2022 by the Office for National Statistics (ONS) shows that the percentage of British households with debt remained steady between June 2010 and March 2020, between 61% and 63%.

Total household debt in Britain was £1.28 trillion between April 2016 and March 2018, according to the most recent government data.

There’s more variation if you break it down by geographical region, with a slight north/south divide (April 2018 to March 2020).

Region Percentage of households with financial debt
Yorkshire & the Humber 54%
North East 53%
East Midlands 53%
North West 50%
South West 50%
East of England 49%
West Midlands 47%
Wales 47%
Scotland 47%
London 46%
South East 46%

The ONS data shows how common debt is. It’s not unusual for someone to pass away while still owing money to creditors.

What is an estate?

A person’s estate is the money, property and possessions they leave behind when they pass away. The money portion can include cash, investments, and any life insurance policies.

Check whether the person who passed away has any life insurance policies that will pay out. This money can:

  • Be paid into their estate
  • Be paid to the joint policy holder, if they are still alive
  • Be paid to a nominated beneficiary
  • Be paid into a trust

The executors of the will must estimate the value of the estate before anything else is done, in case inheritance tax must be paid.

What is probate?

Probate is the legal right given to an executor or administrator of a will to deal with the deceased person’s estate, including paying off their debts. The government website notes that you shouldn’t make any financial plans or put their property on the market until you have probate.

You don’t always need probate. For example, if the person who passed away only owed a small amount of money and didn’t own property, or they jointly owned assets, you are unlikely to need probate. It also depends on the organisations the deceased person used, such as their bank or mortgage lender. Every organisation has different rules. Contact each one to find out if you’ll need probate before you can access the deceased person’s assets.

If you do need probate

The executor(s) named in the will can apply for probate. You can do this online or by post.

If it’s granted, you’ll receive a grant of probate. You can send copies of this document to the relevant organisations to prove you have the legal right to deal with the deceased person’s estate.

Who pays off the debts?

The executor or executors of the will handle paying off the deceased person’s outstanding debts. These people are normally relatives or friends, although a solicitor can also be named. The executor(s) may get help from a solicitor regardless if the estate is large or complicated.

If the deceased person did not leave a will, the people who handle their affairs are known as administrators and have the same responsibility to pay off the outstanding debts.

Executors, administrators and surviving relatives are not personally liable for the debt, unless:

  • They had a joint loan or agreement with the deceased person
  • They acted as a guarantor for them
  • They distribute the estate before all creditors have come forward.

Paying off the debts

If you’ve established that the deceased person has an estate and debts, the next stage is to work out how much these debts are and what kind of debts they are.

Go through their financial documents and make a list of everything they owed. If there’s a guarantor for the debt, they are responsible for paying it, not the executors or administrators.

What type of debts are there?

Individual debts

Individual debts are only in the name of the person who’s passed away. They can be paid off using their estate.

Joint debts

Joint debts are in the name of the person who’s passed away, plus one or more people. The debt will pass to the surviving people, who may be able to ask the creditors to change the payment arrangement if the new one is unaffordable.

Secured debts

A debt can be secured against an asset the deceased person owned, such as a property or a vehicle. If the person couldn’t pay the debt while they were alive, the lender would have recovered the asset to use as payment. 

Unsecured debts

A debt can also be unsecured, which means it isn’t secured against an item or asset. Creditors can’t take these to repay the debt, but they can get in touch with the executors or administrators to discuss payment arrangements.

Undisclosed debts

An undisclosed debt is one the executors or administrators didn’t know anything about. If the executors or administrators split the estate between the beneficiaries and a debt is then discovered, or creditors pursue the deceased person for the debt, then the executors or administrators may have to pay the debt themselves.

You can place a Deceased Estates Notice in The Gazette and a local newspaper in order to avoid this. A Deceased Estates Notice is a statutory advertisement that shows effort has been made to find any remaining creditors and protects the executors or administrators from being liable for undisclosed debts. It can also alert creditors to the death of the person with the debt. Leave two months and a day for them to come forward.

How to pay off the deceased person’s debts

Let all creditors know the person has passed away
This should stop creditors from trying to contact them or take further payments, which can be stressful when you’re grieving and also trying to deal with the estate.

A good place to start is the government service Tell Us Once, which will be available to you once you’ve registered the death. They’ll notify the following organisations:

  • Department for Work and Pensions (DWP)
  • Driver and Vehicle Licensing Agency (DVLA)
  • HM Revenue and Customs (HMRC)
  • Passport office
  • The deceased person’s local council
  • The following pension schemes:
    • Armed Forces Pension Scheme
    • Local Government Pension Schemes (LGPS)
    • My Civil Service Pension
    • NHS Pensions (for NHS staff in England and Wales)
    • Scottish Public Pension Agency schemes (for NHS staff, teachers, police and firefighters in Scotland)
  • Veterans UK

Ask the creditors for a statement with the outstanding debt so you know the figure you need to pay. Once you’ve been granted probate, you can send them a copy of the grant of probate document to prove you have a legal right to deal with their estate.

Check whether they took out insurance

People often take out life insurance to cover debt repayment in case they die unexpectedly.

If they did take out insurance, check the policy to find out if you can claim. If the answer is yes, you can contact the insurance company to make a claim. The payment from a life insurance policy will normally go to a beneficiary, who can use it to pay off the debt (a mortgage, for example). However, the payment could become part of the estate if the deceased person didn’t nominate a beneficiary.

Cover essential costs

There’s a lot to do in the wake of someone’s death, from organising a funeral to dealing with financial matters like debt and legal fees.

Executors and administrators may be able to claim some expenses back from the estate if they had to pay them before they had access to the estate. These expenses include:

  • Costs for cleaning and clearing a property
  • Funeral expenses
  • Legal fees for selling a property
  • Other legal fees
  • Postage costs
  • Probate Registry fees
  • Cost of sorting Inheritance Tax with HMRC
  • Travel costs
  • Valuation services

Keep track of all the expenses you pay out of your own money. Not only will this record help you claim money back from the estate, but it’s required to show that the estate accounts have been prepared.

Pay off the debts in priority order

Debts must be paid in the following order:

  1. Secured debts, such as a mortgage
  2. Priority debts, which can include:
    1. Bills, such as gas, electricity, phone and internet bills
    2. Council tax arrears
    3. Court fines
    4. Overpaid tax credits
    5. Payment for goods bought on hire purchase or conditional sale
    6. Rent arrears
    7. TV license payments
    8. Unpaid child maintenance
    9. Unpaid taxes
  3. Unsecured debts, which can include:
    1. Catalogue debts
    2. Credit card debt
    3. Money owed to family and friends
    4. Overpaid benefits
    5. Store card debt
    6. Unpaid parking tickets
    7. Unpaid water bills
    8. Unsecured loans 

What happens if there isn’t enough money to pay off the debts?

There may be more debts than the estate is able to pay. If this is the case, it is known as an insolvent estate. The debts must still be paid off in the priority order listed above, until the money runs out.

If the deceased person hasn’t left an estate, there’s nothing that can be used to pay off the debts. If there’s no money, the debts go unpaid and die with the person.

However, there may be some cases where the debt was jointly owed, or another person acted as a guarantor. In those instances, the debt would transfer to the other person if they were still alive.

Getting support for debt payment

Paying off someone else’s debts can be stressful. But there are ways to manage the situation. Debt advisors can help you by suggesting ways to pay off the debts, including pointing you towards help that’s available. These services are free from judgment and may offer solutions you hadn’t considered or known about before. Many of them are also free to access.

Where to find advice on debt

What happens when all the debts have been paid?

You can distribute the estate to the parties listed in the will if all the debts and taxes have been paid.