What happens to debt when you die?
The time after a bereavement is difficult, especially if loved ones are having to deal with a heap of debts left behind. Find out what happens to debt when someone dies and who’s responsible for paying it off.
The time after a bereavement is difficult, especially if loved ones are having to deal with a heap of debts left behind. Find out what happens to debt when someone dies and who’s responsible for paying it off.
Does debt die with you?
It depends. If you leave debts when you die, these are paid from your estate, which is the value of everything you leave behind.
If your estate isn’t big enough to pay off the costs, there’s a chance the debts will go unpaid.
It’s up to the executor, after obtaining probate, to make sure debts are settled. Before anything else is done, the executor will estimate the value of the estate, in case inheritance tax is owed.
Who pays off the deceased’s debts?
The executor, or executors, handle paying off the deceased’s outstanding debts. An executor is normally a relative or friend, although a solicitor can also be an executor. An executor(s) may want to get help from a solicitor, especially if the estate is large or complicated.
If the deceased didn’t leave a will, the people who handle their affairs are known as administrators. They have the same responsibility to see that outstanding debts are paid off.
If the deceased has an estate and debts, the executor needs to establish how much the deceased owed and what kind of debts they are. To do this, they’ll need to go through their financial documents and make a list of everything owed.
Can you inherit debt as a family member?
Don’t worry, you don’t inherit debt in the UK. A spouse, partner, children and other family members, including executors, are not personally liable for the debt, unless:
- They had a joint loan or agreement with the deceased
- They acted as a guarantor for them – for example, for a loan or mortgage
- They distribute the estate before all creditors have come forward.
Top tipThe executor or administrator should make sure the deceased’s bank immediately stops making direct debits, standing orders or regular payments, so it’s clear what was owed at the time of death. This may also mean the deceased’s partner or spouse needs to quickly switch household bills to their own name. This is less of an issue for bills paid from a joint account as the account becomes the sole responsibility of the surviving partner. |
What types of debts are there?
These are the types of debt people leave behind when they die – and how they can be paid back.
Individual debts
Individual debts are solely in the name of the person who’s died and might include credit card debt. They can be paid off using the deceased’s estate.
A surviving spouse, relative or civil partner can’t be held liable for these debts, so won’t be required to pay them back.
Joint debts
Joint debts are in the name of the person who’s passed away and someone else. They might include a joint mortgage or loan.
If there are joint debts, the executor and surviving partner need to get the deceased’s name removed from the paperwork. The debt can then be transferred into the surviving partner’s name.
If the surviving partner can no longer make the repayments in full, they may be able to renegotiate the terms of the loan.
Secured debts
A debt can be secured against one of the deceased’s assets, such as a property. If the debt wasn’t paid off before the person died, the lender will recover the asset to use as payment.
For joint tenants, the deceased’s share of an asset, like property, passes to the other owner or owners. It won’t form part of the estate for debt repayment.
For tenants in common who only own a share in the property, the deceased’s share can be used to repay debts.
If there’s any confusion about property ownership, it’s worth contacting the Land Registry.
Unsecured debts
Unsecured debts, like personal loans, aren’t attached to an asset like a house or car, so lenders can’t repossess them to cover the debt. But they can contact the executors or administrators to discuss payment plans.
An unsecured debt won’t be paid by the estate until priority debts have been settled.
Undisclosed debts
An undisclosed debt is one the executors or administrators didn’t know about.
If the executors or administrators split the estate between the beneficiaries and a debt is later discovered, they may have to pay this themselves. They could also be liable if creditors pursue the deceased for the debt.
To avoid this happening, you can place a Deceased Estates Notice in The Gazette and a local newspaper.
A Deceased Estates Notice is a statutory advertisement that shows effort has been made to find remaining creditors. It protects the executors or administrators from being liable for undisclosed debts.
It can also alert creditors to the death of the debtor. Leave two months and a day after publication for any creditors to come forward.
How to deal with the debt as the executor
Once probate has been passed, the executor can use money from the estate to settle outstanding debts. These are the steps to follow:
Step 1: let creditors know the person has died
This prevents creditors trying to contact the deceased or take further payments, which can be stressful when someone is grieving and trying to deal with the estate.
A good place to start is the government service Tell Us Once. They’ll notify government organisations, like the Department for Work and Pensions, and the Passport Office, in one go.
Ask creditors for a statement so you know how much needs to be paid. Once you’re granted probate, you can send them a copy of the grant of probate document. This proves you have a legal right to deal with the estate.
Step 2: if there’s life insurance
People often take out life insurance to cover debt repayment in case they die unexpectedly. If the deceased had life insurance, check the policy to see if you can claim.
Also check if the company they worked for provided a death in service benefit. This pays out a lump sum if someone dies while in employment.
Life insurance pay-outs normally become part of the deceased’s estate and will need to go through probate, if the policy was not written in trust. The money could then be used to settle any unpaid debts and taxes, before anything left is paid out to the beneficiaries.
With a life insurance policy in trust, its value won’t be counted as part of the estate. The pay-out is protected against covering outstanding debts.
If there’s no life insurance
If the deceased didn’t have life insurance, you’ll need to contact the creditors and arrange to pay off debts from the estate. These must be paid off in priority order.
For individual debts:
- Contact the creditor for a statement
- Provide the executor’s contact details
- If you’re the executor, make sure you have probate.
For joint debts:
- Have the partner’s name removed
- Check the terms and conditions
- Renegotiate the loan terms, if necessary.
Step 3: pay off the debts in priority order
Before any debts are paid, you’re allowed to cover any essential costs, such as the funeral and estate administration.
You can use what’s left to repay any debts not covered by life insurance.
Debts must be paid in the following order:
- Secured debts, such as a mortgage
- Priority debts, which can include:
- Utility bills
- Council tax arrears
- Court fines
- Overpaid tax credits
- Payment for goods bought on hire purchase or conditional sale
- Rent arrears
- TV licence payments
- Unpaid child maintenance
- Unpaid taxes.
- Unsecured debts, which can include:
- Catalogue debts
- Credit card debt
- Money owed to family and friends
- Overpaid benefits
- Store card debt
- Unpaid parking tickets
- Unpaid water bills
- Unsecured loans.
Only when all debts and taxes have been paid can the executor distribute the rest of the estate to the parties listed in the will.
Top tipIt’s a good idea to get multiple copies of a death certificate as most finance providers will ask for a copy. |
What happens to your debt if you die with no estate or assets?
If you die with no estate or assets but have outstanding debts, you leave what’s known as an insolvent estate.
If you’re responsible for an insolvent estate, it’s a good idea to consult a probate expert, typically an accountant or solicitor.
How to get 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 payment solutions. They can also point you to what help is available. These services are free from judgment and may offer options you hadn’t considered or known about. Many are free to access.
Where to find free advice on debt
Frequently asked questions
When do you need to pay inheritance tax?
If inheritance tax has to be paid, some of it must be paid probate can begin. The final bill can be paid after probate has been granted.
If a deceased person’s estate is valued at £325,000 or more, it will be liable for inheritance tax.
However, there’s no inheritance tax to pay if:
- The estate is left to a spouse or civil partner
- The estate is valued at less than £325,000 (or below £500,000 if the deceased’s home is left as part of the estate to their children or grandchildren and their estate is worth less than £2 million).
What is probate?
Probate is the legal right to deal with a deceased person’s estate, including paying off their debts.
You won’t always need probate. If the person who died only owed a small amount of money and personal possessions but didn’t own property, or assets were jointly owned, you’re unlikely to need it.
How do you apply for probate?
The executor(s) named in the will can apply for probate. You can do this online on GOV.UK 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’s estate.
What happens to hire purchase agreements after you die?
Items bought on hire purchase don’t belong to you until the final payment is made. If the buyer dies before that, the executor should check there’s insurance to pay off the agreement on death. If so, the item becomes part of the estate.
If not, you’ll need to consider your options, as hire purchase agreements can be complicated. The creditor or a debt advice service will be able to help.
What happens to student loans when you die?
Student loans are written off when you die, so a partner or family won’t be expected to pay them off.
If someone has died, you can call the Student Loans Company (SLC) to let them know.
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