Death is not a subject we want to hear or talk about, but when it happens, the financial aspect like inherited debt is just as challenging to deal with as the emotional one.
So, what happens when a deceased person has debts? Who inherits the debts? The list of questions can often be overwhelming and endless.
To get you started, take a look at our top 20 frequently asked questions to find all the answers you need to help you deal with death and debts.
1. Can I inherit debt?
When a loved one passes away, you may be worried about having to take the burden of their finances. If they have debts such as mortgage payments, credit card debts or personal loans, then you may think that you will need to pay this.
However, you can’t inherit their debt unless you have a joint obligation with them. Instead, their debt is recovered from their estate, including their property, savings, shares etc.
2. What is inherited debt?
Often, we assume that when a relative dies, you inherit their debt. However, a person’s debt is not passed onto you.
The debt is, in fact, not passed onto anyone. Instead, it is the estate left behind which is used to pay off any debts owed by them.
3. Does a debt die with you?
No. Debt is not cancelled when a person passes away. Instead, the debtors are given access to the deceased person’s assets and estate so they can claim their share of the money owed to them.
4. When can a debt be wiped off after death?
The only time debts can be removed or cancelled after death is when the property is not enough to pay off the debt completely.
5. Can someone else be responsible for your debt if you die?
Sometimes, a person can inherit another person’s debt after they die.
This happens if you have put another person’s name in the will during your life, and they have provided a personal guarantee that they will take responsibility for your debt if you pass away.
If a person fails to pay off the debt after the other person has passed away, the creditors can sue them.
6. What happens if I have a joint debt with a deceased person?
If a deceased person has taken out debts from a joint bank account they shared with you; you are responsible for the debt once that person passes away.
7. How is mortgage debt paid off when a person dies?
There are two routes; a mortgage debt can be handled when a person dies.
If the deceased person has life insurance, then the insurance company pays off the amount owed on the mortgage.
If there is no life insurance, then the property left behind by the deceased person will be sold, and the debt will be allocated accordingly to the creditors.
Please read our guide on mortgage debt and arrears.
8. How are rent arrears paid off when a person dies?
If the rent is shared with someone else and one person passes away, then the other living person will become solely responsible for the rent debt.
9. What happens to bank loans when a person dies?
If the deceased person took out a bank loan from a joint account that they shared with someone else, then the person who is still living will have to take the burden of the debt.
Unfortunately, even if you didn’t take out the loan with them, as you have a joint account, you have to be responsible for the debt.
This is why it is crucial to consider these possibilities when sharing bank accounts or other financial accounts with another person.
10. What happens to credit card debt when a person dies?
Credit card debts are not seen as priority debts, so these debts will only be honoured to the creditors once other priority debts have been cleared first.
Remember that a deceased person’s debt is paid depending on how much their estate is worth. If there is money left over, that will be used to pay off the credit card debt.
It is crucial to see if you are covered by life insurance or a PPI (Payment Protection Insurance). If this is the case, the debts will not need to be paid out of the deceased person’s estate.
However, remember that if it is a joint credit card debt, the living account holder will need to pay off the debt.
11. What happens to Personal Loan debt when a person dies?
Just like credit cards, personal loans follow the same rules. They are classed as secondary debts, and only if there are funds left over after paying off the priority debts will the personal loans company be able to recover their money.
Also, if the personal loan has life insurance attached to the agreement, the creditors will use this to obtain the money for the debt rather than getting the money from the person’s assets or savings.
Find out how you can get help with secured loan debt.
12. What happens to outstanding utility bills when a person dies?
Outstanding household bills such as electricity, gas and water are seen as priority debts, so once a person dies, and if they were solely responsible for the debt, this would be recovered by the creditors by the sale of the person’s assets.
Find out more about how the Energy Crisis 2022 is affecting UK households.
13. What happens to Council Tax debt when a person dies?
Council tax debt is seen as a priority, and it is high up on the list in terms of getting the debt repaid. Therefore, if the expired person owes any tax, this will need to be claimed immediately through their estate.
14. How can I pay for a deceased person’s funeral expenses?
When a person dies, debts and expenses have to follow a particular order regarding how they will need to pay.
Quite often, people assume that the family member or the next of kin will need to pay for the funeral expenses; however, there is no financial obligation for them to do this.
Instead, the person responsible for the burial will be allowed access to the deceased person’s assets and savings to pay for the arrangements.
Only after this has been paid will other debts be able to be paid off.
15. What happens if I have a joint debt with a person who dies?
Unless there is a life insurance policy in place, if you have taken a joint debt with someone who passes away, such as a loan, credit card or rent, the joint debt will go to the person who is alive.
16. What happens if the person who dies has more debts than their assets?
This is known as an insolvent estate. After all the assets and savings have been issued to the claimants, any other debts will need to be cleared without being paid.
It is often the secondary debts, such as credit cards and personal loans, which will not be able to claim anything as they are much lower down the list.
This is why these companies often ask people to take out payment insurance so that they are covered during these eventualities.
17. Which expenses and debts get paid first from a deceased person’s estate in the UK?
Court fees, solicitor fees, and funeral expenses are the priority expenses or debts which will get paid first, then the priority debts such as rent, mortgage and utility bills and lastly, the secondary debts.
18. What happens to my property if my spouse dies?
All property and assets are transferred to you if your spouse dies. However, it is essential to note that there is a difference between a spouse and a cohabiting partner.
A cohabiting partner who has not had a UK civil marriage will not have access to shares, assets, pensions or life insurance. Instead, this will all be transferred to the person’s closest living relative or next of kin.
Before this is all considered, all debts and outstanding bills need to be paid off through the estate. Only after that will the next of kin inherit the remaining estate.
Find out if you are responsible for your spouse’s debt.
19. Do creditors have a legal right to claim debts from a deceased person?
Yes. Creditors have a legal right to claim assets from someone who owes money to them.
However, to do this, a creditor needs to make a claim within five years of the debtor’s death and also, and creditors need to follow the order of debts being paid. If they are at the bottom of the priority debts list and the estate becomes insolvent, the claimants will get nothing.
20. What do I do if I become solely responsible for a deceased person’s debt?
When a loved one passes away, settling their estate can be a minefield. Emotional stress is enough to deal with, so sorting out the financial aspect of a person’s assets can become overwhelming.
However, what happens when some of the debts are joint debts? The responsibility is often pushed onto the living person who holds the joint account.
Firstly, check if you have insurance attached to the debts, so they can help ease the burden.
If that is not possible and you feel like you cannot deal with the mountain of debt, consider looking at some debt solutions to help you get out of debt.