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It’s not something we ever really want to think about but what happens to your money and debts after you die can cause a lot of confusion for those left behind.

Credit card debt and mortgage debt are topics that cause enough headaches while you’re alive, so you can imagine how complicated matters can become after somebody in debt passes away.

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Your debts don’t necessarily die with you

While you may be of the opinion that your debts will die with you, that is not always the case.

Although creditors will often voluntarily write off the debts of a deceased person, or at least choose not to pursue them, they are not obligated to.

When you die, any debts you have must be repaid from your estate before any other claims on the estate can be met, regardless of whether or not you have made a will. In some extreme cases, creditors may sue your estate for the payment of outstanding debts.

If you die and have no estate, then your debts do die with you as they cannot be repaid. In this case, your relatives are not liable for your debts unless they have provided personal guarantees for those debts.

Your estate is classed as all the property, goods and money you own which are available for distribution after your death.

Some debts after death may be covered by insurance policies – for instance, life insurance policies generally cover mortgage payments – but these policies may not cover all debts (or you may not have insurance at all), in which case the debts will still be outstanding after death.

Some insurance policies also have a nominated beneficiary, which helps as the proceeds of the policy go directly to that beneficiary and do not form part of your estate.

If a debt is in joint names, responsibility will automatically pass to the surviving account holder.

In the case of credit card debt, however, this would not be the case. Credit cards aren’t issued in joint names which means an ‘additional cardholder’ won’t take on responsibility for a credit card debt if the account holder dies.

Speaking to This is Money, Andrew Shaw, debt advice policy coordinator at StepChange, said: “Any outstanding debt owed by the deceased person at the time of their death will be repaid from the proceeds of their estate as part of the probate process.

“If this isn’t sufficient to repay all the debts, the estate is insolvent and could be subject to an ‘insolvency administration order,’ which is a kind of bankruptcy for a deceased person’s estate.

“A trustee will be appointed to distribute the proceeds of the estate fairly between all the creditors. Either a creditor or the representatives of the deceased person can apply for an insolvency administration order.”

Dealing with mortgage debt after death

In the case of joint ownership, the way the property is dealt with following the death of one of the owners depends on how the joint ownership was constructed.

In a ‘joint tenancy’, the property automatically passes to the surviving person, so the creditors can’t force the sale of the property. Although, if an insolvency administration order is granted, the surviving person may have to pay the value of the deceased person’s interest to the trustee.

If the joint owners were ‘tenants in common’ and owned separate shares of the property, the deceased person’s share forms part of their estate and the creditors can force the sale of the property to recover their money.

If you think your home may be at risk due to debts left by a recently deceased joint owner, you should seek legal advice as soon as possible.

Once the estate has been dealt with, relatives have no responsibility for any remaining debts.

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What to do if a loved one dies

If a loved one dies, there are other steps relatives can take early on to help settle any outstanding debts more smoothly.

The easiest solution is to make a list of all of your deceased family member’s debts or credit contracts, then contact banks and lenders early on to make them aware of the situation.

The last thing you want or need is companies sending bills addressed to your family member who has recently died, chasing them for late fees and penalties and harassing you while you are grieving.

Contacting creditors will stop them from adding to the debt or bills with late fees and extra charges. Sometimes they may require documentation, so it is worth taking extra copies when you come to register the death.

You should also contact any utility companies and mobile phone providers; some may not allow you to cancel the contract, but it is worth asking. If there is an outstanding balance, this will be taken from the estate.

You may also be eligible for bereavement support payments if it is your husband, wife, or civil partner who has died. You can find out more about this here.

You can also get free help from debt charities and advice websites or speak to an advisor who can help explain your options.

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