If you’ve lost someone close to you and you’re dealing with their estate, or if someone’s passed away and lenders are getting in touch with you, it’s normal to feel overwhelmed. Different countries have different rules around what happens to a debt when you die. So you might’ve heard conflicting info.
So what happens to debt when someone dies in the UK? And can you inherit debt? Here you can find answers to all of your questions, as well as some steps to help you settle debts or get them written off.
Can you inherit debt in the UK?
First, it’s important to know that you can’t inherit debt in the UK. If your parent, partner, sibling or any other relation had debt in their own name, you’re not responsible to pay this debt when they pass away.
The only reason you’ll have to pay debt when someone close to you passes away is if it’s a joint debt that you took out together (with both names on the contract) or if you acted as a guarantor for them when they took the debt out.
What happens to debt when you die in the UK?
When someone dies with debt it should be paid off by their estate. The estate is everything that the person owned. It could be their savings, or money made from selling their home, car or personal belongings.
The executor or administrator of the estate will be the person responsible for using the estate to pay the debts off. This person will be named in the will. If there isn’t a will, you’ll need to apply for letters of administration. This will give you the right to deal with the estate and clear any outstanding debts.
Different types of debt people leave behind
The type of debt that’s left behind will affect who’s responsible for it and when it should be paid off.
Here are the different types of debt you may come across when dealing with someone’s estate and how they should be dealt with.
Individual debts
This type of debt will only b in the name of the person who passed away. No one else will be named on the contract.
Examples of individual debt includes:
- A personal credit card
- A personal loan
What happens to someone’s individual debt when they die?
All of this debt should be paid out of the person’s estate. If there isn’t enough money in the estate to pay off individual debt this will usually be written off. A partner or relative of the person who died wouldn’t be responsible for paying off this type of debt unless they put themselves up as a guarantor.
Joint debts
Joint debt is a type of debt that’s taken out by 2 people. It’s important to know that both people are responsible for the whole debt, rather than each being responsible for half. This means that if one person is unable to pay, the other person will be responsible for the whole debt, not just half.
Examples of joint debt include:
- A mortgage that 2 people signed for
- An overdraft on a joint bank account
What happens to someone’s joint debt when they die?
If one person passes away then the debt will automatically be passed onto the remaining person who’s named in the contract. The second person will be responsible for making the remaining payments.
When dealing with this type of joint debt it’s always worth contacting the lender to tell them what’s happened. They may be able to help you arrange smaller repayments over a longer period of time to help you deal with the debt on your own.
Secured debts
Secured debt is usually backed by property such as a car or house.
Examples of secured debt include:
- A mortgage
- Car loans
What happens to someone’s secured debt when they die?
This kind of debt should be cleared using the person’s estate. However, as these are usually larger debts, you should also check whether the person had life insurance. This could help to clear the outstanding balance. If there isn’t enough money to pay the debt, the lender can repossess the collateral (for mortgages this is usually the property and for car loans this is usually the car). They’ll usually auction off the collateral to make back some of the money they’re owed.
Unsecured debts
This type of debt is not backed by property. So lenders can’t take any property left behind to cover the debt.
Examples of unsecured debt include:
- Credit cards
- Utility Bills
What happens to someone’s unsecured debt when they die?
Lenders will still try to recover this debt but unsecured debt falls bottom of the list of priorities when it comes to paying off outstanding debts when someone’s passed away. These lenders willusually have to wait until higher priority debts are paid off.
Undisclosed debts
Even if you’ve already dealt with someone’s debts after deaththere’s a chance that you may find other debt later on that you had no idea about. You could be contacted by another lender looking to recover the debt and it could take you by surprise.
To avoid this you can place a notice in a newspaper. This is often called a deceased’s estate notice. This will show that you made every effort to let lenders know what’s happened so they can come forward to recover their money.
It’s a good idea to do this before any money from the person’s estate is given out to family members. That way, you know that there is money left to cover any debt that shows up unexpectedly. And you’re not responsible for paying off the debt yourself.
Paying off the debts of someone who has died
Now you have a clearer idea of the type of debt you could come across here are the steps you’ll need to take.
Contact all lenders to let them know what’s happened
- Get in touch with all the companies that the person owes money to.
- Tell them the person has passed away and you’ll be dealing with their estate.
- Ask them to send you a letter with the amount that’s still owed to them.
- Is it an individual or joint debt? Any direct debits taken from the person’s bank account for individual debt should be stopped until the debt is dealt with in the right order. If it’s joint debt the name of the person who died should be removed from the account.
Contacting lenders as soon as you can means that they won’t be chasing you for the money. This will make things less stressful for you. It will also help you feel more in control of the process especially if you know exactly how much is owed to which companies.
Check for an insurance policy
Did the person who passed away have life insurance? Or did they have a death in service benefit at work? Make sure you check this as soon as you can. It will make a big difference when it comes to paying off debt.
- You’ll need to check the policy to see what it covers and if there are specific things that aren’t included. For example, does it cover an unexpected death but not a death caused by a sporting accident?
- Get help from other family members so you know exactly what the policy covers. These types of insurance policies will usually have a named person who’ll receive the payout. But if they don’t then the payout could form part of the person’s estate and help towards outstanding debt.
- No insurance policy? The person responsible for dealing with the person’s estate will need to wait for probate or grant of administration before paying off the debt. This means that you’ll be allowed to use money from the person’s estate to pay off debt and to share out any remaining money to family members named in the will.
Get a grant of probate or letters of administration
This will give you or the person named in the will the permission to deal with the person’s estate. They’re often called the executor of the estate. Once you have probate or letters of administration you can figure out the total amount of the estate. This will help you get a handle on what debts you’ll be able to pay off from the estate. Just keep in mind that you may need to sell some of the personal belongings of the person who died to pay off some of the debt too.
Pay debts out of the estate in the right order
This is the correcgt order to pay debt after death:
- Secured debts such as the mortgage
- Funeral costs
- Costs associated with administration of the estate
- High priority unsecured debts such as income tax and council tax
- Other unsecured debts such as personal loans, overdrafts, utility bills and credit card bills
What if there’s not enough money in the estate to pay all the debts?
This is usually called an insolvent estate. All you can do in this case is pay off what you can in the priority order above. Once the money from the estate runs out the remaining debt should be written off.
It’s important to follow the priority order of payments when dealing with the estate. If, for example, you pay a debt owed to the person’s relative before you pay for an outstanding credit card bill you could be made responsible for the credit card bill. So make sure you do all you can to pay off the most important debts first.
What if there’s no money to pay all the debts?
If the person who passed away didn’t leave any money behind and didn’t have an estate (for example, no property, didn’t own a car, etc), the debt will be written off. People often refer to this as the “debt dying with you”.
Remember, it’s nobody else’s responsibility to pay the debt off, so don’t feel pressured to use your own money.
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