Paying off a person's debt when they die
Find out who is responsible for a person's debt when they die, how to pay off that person's debt, and what lenders cannot claim for.
How to pay off a person's debt when they die
Debts should be paid off by the deceased's estate, such as:
- Property
- Possessions
- Cash
- Any money they leave behind (for example, insurance and investments)
Who deals with the estate
The estate is handled by one or more executors.
If they did not leave a will it will be dealt with by an administrator. These are often a relative, friend or solicitor.
Paying off debt
Debt should be paid off in this order
- Funeral costs
- Death taxes
- Secured debts
- Unsecured debts, for example credit cards.
To do this, the executor or administrator will need authority to be able to handle the person's affairs.
This is called 'probate' or 'letters of administration'.
Their will
Outstanding debts must be paid off (by the deceased's estate) in priority order before anything can be given to anyone named in the will, or until the money runs out.
Not enough money to pay off debt
Lenders cannot claim if the deceased estate is not large enough to cover the debts (for example, no assets or savings).
Who is responsible for debt
Lenders cannot claim from relatives, including a husband, wife or civil partner.
However, you are responsible for debts if you had a joint loan or agreement or provided a loan guarantee.
Insurance
Check if there is insurance that may cover the deceased person's debts, for example
- Deathcover for a mortgage
- Death in service from a pension (if the persons dies before pension age a lump sum may be paid)
- Payment protection cover on personal loans and credit cards.
Your home
Joint ownership
If you own a property in joint names you may have to sell it if there is insufficient money elsewhere to pay off the deceased person's death. This may be avoided but it depends on whether you owned it as joint tenants or tenants in common.
Joint tenants
If you are a joint tenant, the deceased person's share passes automatically to you. Although it now becomes part of your estate, you should not ignore the debt.
Creditors can apply for an Insolvency Administration Order within five years of the death, in effect dividing the property in two and forcing a sale. It is better to try to reach an agreement with them and try to pay off the debt.
Tenants in common
Tenants in common own a specific share of the property, and the share belonging to the deceased person forms part of their estate and goes to whoever is mentioned in their will.
If there are any debts these must first be paid from that share. If you want to avoid a forced sale, you and any beneficiaries should try to negotiate with the creditor and pay off the debt.
Paying different debts - are you responsible?
- Mortgages: life insurance may pay off the full loan, but if there wasn't any, or if there were second mortgages not covered by insurance then the property may have to be sold
- Rent arrears: the joint tenant must pay off any rent arrears
- Water rates: anyone living in the property is responsible for the arrears and ongoing charges, even if their name is not on the bill
- Council Tax: anyone living in the house is responsible for any arrears and ongoing charges, even if their name is not on the bill. A 25 per cent discount is available for sole occupants. There is usually no charge if the property is empty.
- Fuel bills: you may be liable if you have been living in the property jointly
- Hire purchase agreements: the buyer only owns the goods when the last payment is made. If over a third has been paid then the seller needs a court order to get the goods back. Check to see if a payment protection was set up before returning goods or making payments.
- Personal loans and credit cards: these must wait until priority debts have been paid. If cards are held jointly then the debt is the joint holder's responsibility. Check for any payment protection plan.
- Tax debts and overpaid benefits: these must be paid out of the estate. It is best to contact the relevant offices quickly to prevent overpayments, and check if tax is owed.