Dealing With The Debts Of The Deceased

When someone dies, debts they leave are paid out of their estate. You aren't automatically responsible for a husband's, wife's, or civil partner's debts.

What is an Estate?

An individual’s estate is made up of the person’s cash (including from insurance) and investments, property, and possessions.  

After someone dies their estate is handled by one or more 'executors' - or an 'administrator' if there wasn't any will. This is usually a relative or friend and/or a solicitor. 

If the estate's worth above a certain amount the executor or administrator will need special permission - called 'probate' or 'letters of administration' - to be able to deal with the person's affairs. This includes paying off their debts. 

You're only personally responsible for repaying their debts if you had a joint loan or agreement or acted as their guarantor.  

Identify Their Debts 

Firstly, you should go through their papers and financial statements and make a list of everything owed. 

• Individual Debts Individual debt is where one person has taken out the debt in their name. A personal credit card where there is still an unpaid balance is an example of individual debt.  

  Ask the loan provider for a statement or letter showing the outstanding balance and give them the details of the executor or administrator for the deceased’s estate, as individual debts will be paid directly from the estate. 

• Joint Debts Joint debt is where two or more people have taken out a loan in both their names. A joint mortgage and a joint current account with overdraft are examples of joint debt. 

  Check the terms of the loan to see if you're covered by a payment protection plan and ask the provider to take out the deceased person’s name from the bills. This means that you, as a joint debt holder, will become responsible for the repayment of the debt. 

  If you can’t afford to pay each instalment in full, see if you can renegotiate the repayments to an amount that you can manage.  

• Secured Debts  Secured debt is where a person has taken out a loan against an item or asset. A home mortgage is an example of secured debt.

  If you jointly owned your home and there's not enough money elsewhere in the estate to pay off the deceased person's debts, your options depend on whether you owned it as 'tenants in common' or 'joint tenants'. 

  • 'Tenants in common'  If you were ‘tenants in common’, each of you owned a stated share of the property. The share belonging to the person who has died becomes part of their estate and goes to whoever is mentioned in their will. But if there are outstanding debts these must be paid first from that share. To avoid a sale of the home, you and/or anyone due to inherit the second share will need to negotiate with those owed money ('creditors') and find the necessary money. 

  • 'Joint tenants'  If you were ‘joint tenants’, you owned the whole property together and the deceased person's share passes automatically to you. But even though it's now in your estate, you can't ignore the debts. Creditors can apply for an 'Insolvency Administration Order' within five years of the death. This can have the effect of dividing the property in two and can force a sale. So, it's in your interest to try to come to an agreement with people who are owed money and try to pay them yourself. 

• Unsecured Debts  An unsecured loan is more straightforward – you borrow money from a bank or another lender and agree to make regular payments until it’s paid in full. A home improvement loan is an example. 

  You’ll also need to check if there is a guarantor for any of these debts - the guarantor remains liable for that debt if it is not paid by the estate. 

How to pay off outstanding debts after a death 

Step 1: Tell creditors that the person has died 

Tell them that you’re going through the legal process of dealing with the person’s estate. 

Ask them for a letter or statement showing the outstanding balance on the debt. 

Once they know this, they should back off and give you time to sort out the estate and debts. 

Step 2: Check if there’s insurance 

The next step is to check if the person took out any insurance to pay off the debt. 

For example, a life insurance policy to pay off the mortgage in case of death. 

If there is insurance, check the terms of the policy for what you can claim. You can then contact the insurance company. You can use the money from the claim to pay off that debt. 

If there is no insurance, you’ll need to contact the creditors to decide arrangements to pay off the debts if they haven’t already made a claim on the estate. 

Step 3: Pay in priority order 

You should pay off the debts in this order of importance: 

• secured debts, such as the monthly mortgage payments 
• reasonable funeral costs and the costs of administering the estate 
• unsecured debts, such as utility bills, unpaid rent, Council Tax and other taxes, repayment of overpaid benefits, credit cards. 

If there are assets, such as a car or a house that if sold, could go towards paying off the debts, it’s an option worth considering. 

If you think there may be savings in a lost bank or building society account, a search can be carried out by using a free application online. 

Paying the debts first is more important than distributing the estate to the heirs. 

If there's not enough money to pay outstanding debts 

If there are more debts than the estate can pay back, this is called an ‘insolvent estate’.  

In this case, the estate has to pay off any outstanding debts in a set order before anything is given to people named in the will, or until the money runs out. In this situation, it is best to seek the advice of a solicitor or a probate specialist.  

Undisclosed debts 

Occasionally, after all the debts are paid, you might find a debt that you knew nothing about. 

To avoid this, you can advertise in a local newspaper before you start arranging to pay the debts. 

This gives the deceased’s creditors time to come forward with their claims. 

You aren’t under a legal obligation to place a Deceased Estates Notice, but if you fail to do so, you could put yourself at risk. This is because if you distribute the Estate and a creditor then comes forward, you could be found personally responsible. You may therefore have to pay the debt from you own pocket.