What Happens When Someone Dies with Debt?

Coin Bucket Spill

If a person dies and they still have debts outstanding, those will need to be repaid by someone. This is normally taken care of by the deceased’s estate, but in certain situations it can fall to spouses or other family members to take care of. If someone close to you has recently died with a large amount of debt, this guide should help you work out what to do about addressing their financial problems.

Types of debt

There are a number of different kinds of debt and the manner of those facing the deceased will determine who must pay them. These fall into the following categories (which are not mutually exclusive):

Secured debts. Secured debts are normally loans taken out against a commodity or asset. For example, a loan taken out to finance the purchase of a car or a mortgage to buy a house are examples of secured debts.
Unsecured debts. Unsecured debts are normally loans taken out under the agreement that the sum (plus interest and any fees) will be paid back over a fixed time period. Examples of unsecured debts include credit cards, home improvement loans and student loans.
Individual debts. Individual debts are ones taken out solely in the name of the deceased, such as the overdraft on an individual bank account or amount outstanding on an individual credit card.
Joint debts. Joint debts are those taken out in the name of more than one person, such as the overdraft on a joint named account or amount outstanding on a joint mortgage.
Undisclosed debts. Undisclosed debts are ones about which the deceased surviving family do not know. It’s a good idea to put an obituary in the local newspaper shortly after the person’s death to give creditors the opportunity to learn the news and come forward with their claims – otherwise, it’s possible that years after the event they could lodge a claim on the deceased’s estate.

Who is liable for the debts of the deceased?

If the debts (secured or unsecured) were taken out jointly with other people, the debt will be automatically transferred to the surviving party or parties after their death. This is true in the case of overdrafts on joint bank accounts or the outstanding sum on joint mortgages.

However, if the debts were individual ones, their repayment will be deducted from the deceased’s estate. This is a basic rundown of the order in which those debts will need to be dealt with:

1) Secured debts
2) Funeral costs
3) Unsecured debts

If the amount of debt outweighs the value of the deceased’s estate, the estate becomes known as insolvent. It is likely that assets such as houses or cars will need to be sold off in order to settle any outstanding debts. If these assets have been bestowed on you and you are reluctant to sell them off, it may be possible to come to an arrangement with the creditors for a reasonable schedule of repayment.

How to address the debts of a loved one

If it falls to you to organise the repayment of a loved one’s debts, it is a good idea to take stock of their arrears before doing anything else. Look through their bank records and other financial affairs and determine which parties are owed how much money.

Next, it’s sensible to contact each of the involved parties and inform them of the death. Creditors are normally sympathetic in such circumstances and will be happy to allow time for the affairs of the estate to be taken in hand, but if they are left in the dark they may charge late fees or become otherwise disgruntled.

Before starting repayment, make sure that the deceased did not take out an insurance policy against the debt. For example, many people take out a life insurance policy against their mortgage so that the remaining arrears can be paid from an insurance claim. If that is the case, put the wheels in motion to lodge a claim.

Finally, put in place a plan to repay the debts. If they were individual, that will fall to the executor of the estate to organise. If you are the executor, you should obtain probate of the estate as soon as possible and begin the process of debt repayment. If the debts were joint and you are now liable for their repayment, establish a plan to settle them in the order of priority listed above.


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Funeral Director fees

The price quoted contains the Funeral Director fees for a simple funeral. This includes:

  • Funeral Director fees for meetings, paperwork and running the funeral
  • Collection of the deceased and care prior to funeral
  • Hearse or appropriate vehicle for transport to the funeral
  • Basic coffin

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In addition to the disbursements you may want to discuss optional costs with your Funeral Director - these could include:

  • Funeral flowers
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What is a Direct Cremation?

A Direct Cremation is an alternative to the traditional funeral. This involves the cremation of the deceased without a funeral service. A Direct Cremation is generally the most economic option because costs of the coffin, preparation of the body, funeral service and expensive transportation are not included. However, many people choose Direct Cremations for reasons other than expense, for example:

  • - Wanting to have a memorial at a different time to the cremation
  • - Expressed desire from the deceased to not have a ceremony
  • - Individuals with relatives who face big physical or geographical challenges in coming together for a ceremony

The prices quoted for Direct Cremations include:

  • All charges, meetings and paperwork for the cremation
  • Collection of deceased and care prior to cremation
  • A simple coffin and urn for the ashes
  • Cremation fees and delivery of ashes to the family

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