Debt and Death

What happens to debt if someone dies?

Debt and death are a complex legal situation. Someone has died, and money is still owed after their death. Generally, any debts remaining when someone dies are paid from their estate, which is the total sum of the money and assets that they leave behind.

Could I be responsible for the debts of someone who has died?

In some instances, other people are responsible for an individual's debts even after they have died. For instance, if the debts were in a joint loan or joint agreement, or provided a loan guarantee. This isn't to say that a spouse or family member is automatically in charge of the debt.

Who deals with a debt when someone dies?

When someone dies, their estate is typically handled by the executors of their will. However, if no will is left, a relative or friend or a solicitor will take the place of administrator. When a will exceeds a certain amount, the executor or administrator will need to be provided with probate to enable them to handle the affairs of the deceased - including paying off all debts.

If there isn't enough money to meet existing debts, what happens?

The estate must pay off all debts before inheritance, in priority order.

I owned a house with the deceased, am I liable?

If a house is jointly owned with the deceased, and there is not enough money to pay off the debts of the deceased, the home may have to be sold. The technicalities of the contract will show whether the house is owned as 'tenants in common' or 'joint tenants.'

How will a creditor go about reclaiming their debt?

Creditors are entitled to apply for an 'insolvency administration order', although only within five years of a death. In this instance, the property can be divided into two and a sale forced. The surviving debtors should come to an agreement with the creditors.

What about other debts such as mortgages?

Often when it comes to mortgages, any parties have a life insurance policy, in which case this may be able to cover the full amount owing on the mortgage. However, if there is no insurance policy, the property might have to be sold to cover the mortgage. When it comes to other bills, anyone remaining in the house is responsible for the bills and council tax. Payment protection plans can help when it comes to goods on hire purchase or loans.

What about lower priority debts such as loans and credit card debt?

Lower priority loans such as credit card debt and personal loans will also have to be settled when someone dies, but only after more pressing debts are dealt with . In any cases where a joint agreement has been made, the joint holder is responsible for the death in the event of a death. However, payment protection plans may cover this.

Insurance to cover death and debt

In some cases an insurance policy may cover debts in the event of a death. It is certainly worth the surviving relations checking to see if the debts could be covered by an insurance policy.