When someone dies and leaves debts, what happens to these debts depends on a number of things. These include what kind of debt it was, if it was secured against anything, if there was a guarantor or insurance and if there are enough assets left in the estate. Unless the surviving relatives are co-signers or guarantors of the loan, they will not be liable for paying off any debts out of their own pocket. This guide will help you find out what debts need to be repaid and what you need to do.
What happens to debts when you die?
When someone dies, their debts become a liability on their estate. The executor of the estate, or the administrator if no Will has been left, is responsible for paying any outstanding debts from the estate.
If there is insufficient money or assets in the estate to pay off all the debts, then the debts would be paid in priority order until the money or assets run out. Any remaining debts are likely to be written off.
If no estate is left, then there is no money to pay off the debts and the debts will usually die with them.
Surviving relatives will not usually be responsible for paying off any outstanding debts, unless they acted as a guarantor or are a co-signatory of the debt.
Who has to pay off the debts?
It is the responsibility of the executor or administrator to pay off the debts.
Being an executor does not mean you will be held personally liable for any debts of the estate. However, there are some exceptions and taking on the responsibility does come with some risks.
If it’s a large or complicated estate, you might want to consider seeking the advice of a solicitor or probate specialist.
Sorting out the debts of someone who has died
The first step is to figure out what debts have been left and what kind of debts they are.
Go through papers and financial statements and make a list of everything owed.
You’ll need to check if there is a guarantor for any of these debts. If there is the guarantor remains liable for any debt covered by a guarantee if it’s not paid by the estate.
There’s a different way of dealing with and paying off the different kinds of debt. So, it’s important you find out what kind of debt it is.
Debts which are in the deceased name only can be paid out of the value of the estate. If they do not have enough assets to pay-off the debt, then the debts will be written off. Individual debts can be secured or unsecured.
Any surviving spouse, civil partner, or relative cannot be required to pay off individual debts out of their own pocket, unless they have provided a personal guarantee.
A personal credit card with an outstanding unpaid balance is an example of individual debt.
If two or more people have taken out a loan in all their names, in most situations the outstanding debt will pass in full to the surviving people who took out the loan.
A joint mortgage and a joint current account with an overdraft are examples of joint debt.
One thing you could do is check if there is an insurance policy to pay off the debt. If not, you could contact the creditor or lender to check the terms of the loan. If you think you might be unable to meet your payment obligations, explain your situation and see if you can negotiate a more affordable payment arrangement.
If a debt is secured against an item or asset, for example, a property, things are a little more complicated.
Before working out the value of an asset, like your home, you must find out how it was owned and the value of the deceased’s share of the jointly owned asset.
If you’re joint tenants, where each person owns all the property, the deceased share of the property automatically passes to the other owner or owners. This means the property does not form part of the estate and cannot be considered when paying back outstanding debts.
The surviving owner will continue to be responsible for making the repayments on the loan as normal.
If you’re tenants in common, you only own a specific share of the property. This means, the deceased’s share of the property can be taken into account when paying back debts.
If the item securing the loan is not a property, similar rules apply. So, for example, if the asset is owned outright by two or more people, then it can’t be taken into account.
If it is only owned by the deceased, even if other people have use of it, then it can be used to pay off outstanding debts.
If you are not sure who the property is owned, you can find out from the Land Registry for a small fee for properties registered property in England and Wales. Some properties are not registered and if this is the case you will need to check the deeds.
An unsecured debt is not secured against your home or other asset, for example a car. Creditors trying to reclaim a debt cannot take these if you’re unable to pay off the debt.
You can still be pursued for these unpaid debts, but generally they will have to wait until the priority debts have been paid first.
There is more information about the order debts must be paid after death later on in this guide.
Occasionally, after all the debts are paid, you might find a debt you knew nothing about.
To help avoid this, you can advertise in a local newspaper before you start arranging to pay the debts.
This gives the deceased’s creditors time to come forward with any claims.
You aren’t under a legal obligation to place a Deceased Estates Notice, but if you fail to do so, you could put yourself at risk. This is because if you distribute the Estate and a creditor then comes forward, you could be found personally responsible. You might therefore have to pay the debt from you own pocket.
A period of at least two months should be allowed from the date of the advertisement for the submission of any potential claims on the estate.
How to pay off debts after death
Step 1: Tell creditors the person has died
There is a lot to do when you’re dealing with the debts and estate of a deceased.
Getting letters or phone calls from creditors demanding payment just adds to the stress of the situation. So, contact the creditors and let them know the person has died.
Tell them you’re going through the legal process of dealing with the person’s estate. You should also ask them for a letter or statement showing the outstanding balance on the debt. Once they know this, they should back off and give you time to sort out the estate and debts.
If it’s an individual debt, they should also stop taking out regular payments from the deceased’s bank account(s) until the debt is settled in full.
If it is a joint debt, then the name of the deceased can be removed from the debt.
Step 2: Check if there’s insurance
The next step is to check if the person took out any insurance to pay off the debt. For example, a life insurance to pay off the mortgage in case of death.
You should do this no matter what kind of debt it is.
If there is insurance
Check the terms of the policy for what you can claim. Some policies, such as payment protection insurance (PPI) usually only pay out for periods of unemployment or illness but not death. You can then contact the insurance company to make a claim. Once the claim is processed, you can use the money from the claim to pay off the debt.
In most cases the proceeds of a life insurance policy will go directly to a nominated beneficiary and will not form part of the estate. However, if no beneficiary has been nominated the proceeds of the life insurance policy might form part of the estate and could be used to pay off the outstanding debts. This will depend on the terms and conditions of the policy and how it was set up.
If there is no insurance
You’ll need to contact the creditors to make arrangements to pay off the debts if they haven’t already made a claim on the estate.
For joint debts:
- you should check the terms of the loan
- ask them to take out your deceased partner’s name from the bills and transfer all future bills to your sole name
- if you can’t afford to pay each instalment in full, see if you can renegotiate the repayments to an amount and schedule you can manage.
For individual debts:
- ask for a statement or letter showing the outstanding balance on the debt
- give them the name and contact details of the executor or administrator for the deceased’s estate. They’re responsible for making sure the debt is paid from the estate.
- if you’re the administrator of the estate, you’ll need to have probate or a grant of administration
- the executor will pay the debts off in priority order.
Step 3: Pay in priority order
Before any of the debts are paid, you are first allowed to cover any funeral expenses and the costs involved in the administration of the estate.
Once you have probate or grant of administration, you can use the money in the estate to pay off the debts not covered by insurance. This is more important than distributing the estate to any heirs.
The debts are paid in a specific order:
- Secured debts, such as mortgage repayments
- Priority debts, like income tax and council tax
- Unsecured debts, including utility bills and credit cards
If there is not enough money in the estate to pay off all the debts, the most important are paid off first.
If there are assets, such as a car or house which could go towards paying off the debts if sold, it’s an option worth considering.
If there are more debts than the estate can pay back, this is called an ‘insolvent estate’.
What do I do if I’m struggling to pay off debts after a death?
Did you know?
Most people who have got debt advice tell us they feel less stressed or anxious and more in control of their life again.
If you’re struggling to pay off joint debts after your partner dies, or if the drop in income makes it hard to pay your own debts, it can be hard to know where to turn.
It’s important to know you don’t need to struggle on alone with your debt worries.
There are many ways to manage your debts and some are more well known than others.
The best one for you will depend on your personal circumstances.
It’s always best to talk things through with an experienced free debt adviser before you make a decision about what to do.
How will a debt adviser help you?
A debt adviser will:
- never judge you or make you feel bad about your situation
- suggest ways to deal with debts you might not know about
- always be happy to talk to you, however big or small your problem might be
- find ways to manage your debts even if you think you have no spare money
- check you have applied for all the benefits and entitlements available to you.
You can contact an adviser in the best way for you:
- over the phone.