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Who is responsible for debts when you die?

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Masayo Crumbie

Masayo Crumbie is Chartered Legal Executive in the Private Client Department and can be contacted on 01323 434414 or mc@stephenrimmer.com

What happens to debt after someone dies?

When someone you love has passed away, the last thing you might be thinking about is debt. However, there are many misconceptions about debt and inheritance, and it is essential to understand your position. Many people believe that when a person dies, the debt dies with them, but that is simply not the case. Similarly, it is a widely held belief that family members are personally responsible for paying debts, but this is not often true. In this post, we take a look at what happens to a person's debt after they pass away.

What happens when there are debts on an estate?

If a person passes away with debt, debts will typically be paid out of their estate. The estate is made up of all of the person's assets, including their home, cash, business interests, investments and any other property they may own. It is the role of the executor or administrator to find out what debts have been left behind and work out whether there are enough assets in the estate to cover the debts due. When there is not enough to cover all the debt, creditors will be paid out in a certain order until all of the money is gone.

What is the order of priority for debts on an estate?

Before the executor pays off any debts from the estate, they are permitted to cover costs of the funeral and any administration of the estate.  Once they have a grant of probate, they can then begin the process of paying off the debts before any money is distributed from those named to inherit in the will.  The order in which debts must be paid is as follows:

  • Secured debts (for example, mortgage repayments)
  • Priority debts (such as income tax and council tax)
  • Unsecured debts (such as credit cards and utility bills)

Where there is not enough money to cover all of the debt, this hierarchy ensures the most important are paid off first. If there are assets such as a car or valuables, the executor may sell these to pay off debts on an estate.

What happens if debt is held in joint names?

Where a debt is held in joint names, such as a mortgage, the surviving party who is named on the lending documentation will take on liability for the full outstanding amount.

Can debt pass to a spouse or civil partner?

If the deceased borrowed in their name only, the debt will not pass to a spouse, civil partner or any other person, unless they have provided a guarantee on the loan.

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