Debt after death 

The last thing anyone wants to think about after a loved one has passed is any outstanding money they owed during their life. Nevertheless, it’s something that one must endure if the circumstances apply, and taking an early, proactive approach may lead to a more positive long-term solution.  

When someone passes away and they leave behind a significant debt, it can be daunting to think that a relative would then have to take that debt on. However, outstanding debts would generally be paid out of the estate left behind. Even if the deceased has a spouse, the debt is not inherited by them, unless the debt is in both names. 

Joint debts 

Debts only pass from a deceased person’s estate to someone else if the debt was a joint debt. So, for example, if a married couple held a joint mortgage or credit card and one of them dies, the debt becomes the surviving spouses’ debt on their partner’s death, where they will be solely responsible for it. When this happens, the spouse should tell the creditor that their loved one has died. The debt will then be put into their name. 

Additionally, if the deceased lived with another person, with whom they jointly paid the bills, they may still be liable for debts that relate to the property, such as council tax or utility bills. 

A common issue that can arise from joint debt after death, is the affordability of paying it back by the surviving spouse. If this problem does arise, the remaining debtor could contact the creditor or lender to check the terms of the loan. If they think they might be unable to meet their payment obligations, the creditors may negotiate a more affordable payment arrangement. 

Sole debts 

When a debt is owed by a singular person, it may be payable from their Estate when they die. Relatives may not need to repay this debt with their own money. If there are not enough assets in the deceased person’s estate to cover all the debts, they will be re-paid according to an order of priority. This order of priority means that funeral and administration expenses are to be paid before any other debts. Secured debts such as mortgages, as well as household arrears (otherwise known as priority debts), would then be payable. Finally, unsecured debts such as credit cards and loans would be payable from the funds left over. 

If there are not enough assets in the estate to pay off all the debts in full, some debts might be written off, as, creditors cannot recover the amount still owed from anyone else, including that person’s surviving relatives. It may also be worth checking to see if the deceased held any insurance policies that would pay off their debt after their death. 

The Executor or the Administrator is responsible for paying off the deceased person’s debts from the Estate. They may need to obtain a Grant of Probate or Letters of Administration. They should find out which debts are payable from the deceased’s estate.  

Mortgages

As previously mentioned, it is worth checking if the deceased had a life insurance policy that would cover the remaining, or at least part of the remaining balance of a mortgage.  

Failing this, and should the person be in a position to do so, a relative or beneficiary can pay off the remaining balance. They will not need to have probate granted to do this, however, should the relative or beneficiary want to inherit the property, the executor or beneficiary will at this stage need to obtain a grant of probate.  

If there are no means to pay off the balance in full and there is no life insurance to cover it, the mortgage will then be passed to whoever inherits the property. They may be assessed on whether they can afford to make the monthly arrangements. However, if they cannot meet the payments, they will be asked by the lender to sell and repay the balance from the sale funds.  

Tax-related debt

If the deceased has debts owed to HMRC and/or a local authority, the executor is liable to pay these from the estate. If there is no estate left pay off these debts, then it is likely that the debt will be written off.  

Contacting creditors 

A good way to ensure that all creditors have been contacted after the event of someone’s death would be to place a notice on The Gazette website. The Gazette is the official public record of legal notices in the UK, this notice should tell creditors that they can make a claim against the estate to pay off the debt owed by the deceased. If a notice is not placed in The Gazette after death and creditors try to reclaim the money owed after the estate has been paid out, the executor of the Will may have to pay the debt out of their own money. 

If you have a question in relation to this article, why not get in touch with our Probate team? You can find out more about our probate services here, or you can call 023 8023 4433 to get started. 

Disclaimer: Information on this webpage is not intended for legal purposes or advice. If you require legal advice or services, you should seek a professional legal practitioner.