When you die, does your debt die with you? Between mortgages, credit cards and loans, a lot of us have at least a few debts when we die. Some more than others. But if someone close to you has died in serious debt, it can be scary: is that debt yours now?

 

Does debt die with you?

Not exactly. You might die, but your debt will, for the most part, live on. So, where does your debt go when you die?

When someone dies, any debts they might have are paid out of their estate. Their estate is the money, property, assets and belongings they leave behind. If there’s not enough in the estate to pay off all the debts, they don’t get passed on to family members. Instead, the estate is declared insolvent, and the debts are written off.

However! The executor or the administrator of the estate needs to settle any debts before anyone can inherit anything from the person who has died.

 

Do debts get passed on when you die?

This can be a big concern for those whose family members have died with debt: does a person’s debt die with them, or am I liable now?

We have good news. If the debt was solely in the name of the person who has died, no one else has to pay it after their death. The only exceptions are if:

  • The debt was taken out in joint names. In these cases, the other person will take on the whole of the debt. For example, if two people take out a mortgage on a house together, and one dies, the other person will still have to pay that mortgage.
  • They guaranteed a loan. When you personally guarantee a loan, you promise you will pay it if the person who took it out can’t.

So, the family and friends of a person who has died don’t have to pay that person’s debts. This is the case even if the estate doesn’t have enough money in it to pay those debts off.

 

Who makes sure debts are paid out of the estate?

The executor or administrator of the person’s estate pays off the debts. If there isn’t enough money in the estate to do so, the executor can sell property and assets to pay off debts as well.

The executor or administrator should:

  • Check the financial records of the person who has died to see if there are any debts, and whether they are held solely or jointly
  • Check to see if there are any insurance plans in place that can be used to pay off the debts
  • Contact any creditors they have discovered to let them know about the death
  • Place a notice in The Gazette (a government-run paper) to allow any other creditors to get in touch
  • Wait two months and a day to see if creditors come forward (or six months if no notice has been placed)
  • Pay off the debts according to a specific order of priority (see below)
  • If there is anything left over, distribute to beneficiaries

If the executor or administrator makes a mistake or fails to pay a debt while settling the estate, they are liable for that mistake. So, if someone has died with debts, it may be best to use a professional to administer the estate. They can make sure that everything is done properly.

You can find out more about estate administration here.

 

What happens if there’s not enough in the estate to pay the debt?

The executor or administrator of the estate needs to pay off debts in a particular order:

  • Debts that are secured against the house, e.g. a mortgage.
  • Funeral costs and the costs of administering the estate
  • Unsecured debts, e.g. utility bills, rent, credit cards and council tax

If the estate isn’t big enough to pay off all these debts, the executor or administrator of the estate should apply to have the estate declared insolvent.

In England and Wales, you need to apply to the court for an Insolvency Administration Order. A Trustee-in-Bankrupcy will step in to administer the estate.

In Scotland, you apply to the Accountant in Bankruptcy (AiB) instead. As in England and Wales, the estate will be handed over to a trustee, but process is called ‘sequestration.’

 

Help with debts

Even if you’re not liable for a loved one’s debts, it’s not uncommon for a bereavement to lead to financial problems. Funeral costs and the drop in household income can all leave families struggling. At such a difficult, vulnerable time, debt troubles can be particularly overwhelming.

If you are in debt because someone close to you has died, help is available:

And for help with funeral costs, read our guide here.

 

So, when a person dies, does their debt die with them? Yes and no. 

While family members aren’t automatically liable for the debts of their loved ones, they may have to pay if the debt was jointly owned or if they personally guaranteed it. If the estate is not large enough to cover all its debts, it is declared insolvent and no one has to pay.

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