What happens to debt when someone dies?
Debt after death
When someone dies, the debts they leave behind are settled by paying creditors from the money or assets left in their estate. Their estate is made up of savings, investments or property, plus any possessions of value that could be sold.
Those left behind are only responsible for the debts of the deceased if they had a joint loan or agreement with them, or if they had provided a loan guarantee. If they did not, they won’t inherit the debt, although their inheritance could be reduced if the deceased person leaves debts behind.
You are not automatically responsible for the debt they leave, the debt will still need to be repaid.
Read more: How to cope with the loss of a loved one
How debts are settled after death
When someone dies the debts are paid off out of the remaining money in their estate (all the cash, investments and property they own). If there are assets such as a car, it may need to be sold to pay off the debts.
- The debts need to be paid off before the remainder of the estate is distributed to relatives or anyone else named in the will.
- If there is not enough money left, there is a set order of creditors who need to be paid.
The priority for creditors is
- Debts that are secured against the house, such as the mortgage.
- Reasonable funeral costs
- The costs of administering the estate
- Unsecured debts (those that are not secured against a house), such as credit cards bills, utility bills, unpaid rent and Council Tax.
You should seek legal advice if the estate does not have sufficient money left to pay back all the debts it owes. You will also need to contact HMRC to see if there is a tax bill to pay.
What to do if you shared the debt
Check whether there is an insurance policy set up to pay off any outstanding financial commitments.
- It may be that your partner or relative had taken out insurance to cover the cost of repaying a loan or mortgage in full in the event of their debt.
- They may have had a standalone life insurance policy.
- They may have had payment protection insurance attached to a credit card.
- Check with the insurance company, or mortgage or loan company to see whether you can claim on the policy.
- If they were employed and had a pension at work, or had a private pension, they may have “death in service” benefits which pay out a lump sum if you die before you start to draw your pension.
If you have been sharing a property then you may be liable for fuel bills and Council Tax arrears.
What about overdrafts and credit cards?
If you were jointly liable for a credit card debt, or there is an overdraft outstanding on your joint bank account, then you will be responsible for that debt.
If the credit card was just in the name of the person who has died, or they had an overdraft on an account with a single name, then you are not liable and the debt will need to be paid out of the estate before you or anyone else inherit anything.
Where to get help
Organisations like National Debtline, the Citizens Advice Bureau and CCCS can help you sort out debt issues when a relative passes away.
If you are being contacted by debt collectors and you are not responsible for the debt, then you should follow the complaints procedure for harassment. This means you need to record details of who has contacted you (and when) and report them to the Financial Ombudsman Service.
Some debt collection companies may try to pursue you for someone else's debt, even if you are not legally liable. However, unless there is a financial link, you are not responsible for their debt.
If you are being harassed over debts, or you need more advice, there are organisations which offer free debt and money counselling:
Age UK publishes a detailed booklet called When someone dies.
Phone: 0800 169 6565
Cruse Bereavement Care
Phone: 0844 477 9400
The GOV.UK is a government website with a lot of helpful information about what to do after a death:
Phone: 0808 808 4000