Whether you’re curious about the status of your own assets or wondering what happens to debt after a loved one passes away, our guide will help you understand what happens to debt after death.
Who is responsible for paying debts after a death?
Nobody likes to think about events after we or a loved one passes away, but we must consider how our debt will affect those left behind.
The status of the deceased’s estate determines what happens to their debt after death. An estate refers to the assets someone leaves behind, and includes any property or land they owned, money remaining in the bank, and any personal possessions.
Outstanding debts, like the mortgage payments, rent arrears, credit card debt, and utility bills, are called liabilities. Liabilities decrease the value of the estate.
An executor is appointed as the administrator of the estate. Usually, a will names an executor. The executor must settle the estate’s debts with the estate funds. Only once the debts are paid can the executor distribute the estate assets to
the beneficiaries.
Executors can also protect themselves by placing a notice to creditors in The Gazette and, if they wish, in a local newspaper. This gives unknown creditors the chance to come forward before the estate is distributed.
How are debts treated after death?
There are three main types of debt that may impact the estate of a deceased person:
Individual debts
Individual debts are unsecured debts solely in the name of the deceased person. Individual debts include credit card debt and any personal loans.
Joint debts
Joint debts can be unsecured or secured, and are signed by the deceased and another person. These could include a joint mortgage or credit card.
Guarantor debts
These are debts in the deceased person’s name that also list someone else as a guarantor.
If the deceased had outstanding joint or guarantor debts, these would become the responsibility of the surviving person named on the loan. Any individual debts held solely by the deceased person will fall under their estate and won’t be any beneficiary’s responsibility.
What should I do about the debt after someone dies?
The person’s debts are not the family’s responsibility. The executors or administrators must deal with any outstanding debts. The executor must pay any taxes and debts from the assets. Family members are not responsible for debts unless they are guarantors or co-debtors in a joint debt.
You will have to provide the executor named in the will with all the financial documents they will need. These will include bank statements, credit card statements, and utility bills.
You should inform all the deceased person’s creditors of their death. Each creditor will need a death notice. If you are unsure who the creditors are, placing a notice in The Gazette (and optionally a local newspaper) will help alert any you might have missed.
In some cases, the deceased person may have payment protection insurance (PPI) that covers the loan should they die. If eligible, you could make a claim and use these funds to pay the debt.
If the person had a life insurance policy, how those funds are used depends on how the policy was written. If it was written “in trust” or names a specific beneficiary, the money normally goes directly to that person and is not used to repay debts. If it was not written in trust, it forms part of the estate and can be used to clear outstanding debts first.
Dealing with utility bills after death
Inform the energy companies that the bill payer has passed away as soon as possible. They will need the deceased’s and the executor’s details. They will also want to know whether anyone will still need gas and electricity supplied to the property.
If someone else, such as a partner or family member, is living in the property and plans to stay, they must take responsibility for the utility bills. If no one remains in the property and the bills were in the deceased’s name, the estate will pay any arrears. If there is not enough money in the estate to cover them, the supplier cannot usually recover the balance from family members, and it will remain unpaid.
Dealing with water bills after death
Though water bills aren’t priority debts, you should contact the local water company after a loved one has died. Let them know what has happened and share any details they may need.
As with utility bills, if a surviving partner or family member plans to continue living in the home, they can take over the water bill and continue making payments. Any arrears will become the estate’s responsibility if the property remains empty. If the estate doesn’t have the funds to pay the outstanding debt, the company cannot pursue relatives, and the balance will go unpaid.
Dealing with Council Tax after death
Notify the council of the death as soon as possible. If someone intends to remain in the property, they can transfer the Council Tax bill into their name. They may also be eligible for a 25% discount if they’re now the sole occupier.
The estate must pay any outstanding tax if no one plans to live in the home. If there are insufficient funds in the estate, the council cannot normally recover the debt from relatives, and it will remain unpaid.
What if the deceased person has no assets?
If someone passes away without any assets, all debts solely in their name won’t be owned by anyone else after their death. In this case, you should contact the organisations owed money and inform them that the debt holder has passed away with no estate. They will probably ask you to supply a copy of the death certificate. On receipt of the death certificate, they should then confirm account closure.
What is an insolvent estate?
An insolvent estate is one in which the total amount required to pay the deceased person’s funeral costs, any associated administrative fees, and outstanding debts exceeds the value of their assets. An insolvent estate can be complicated, so you may wish to seek legal advice.
If you decide to pay creditors from an insolvent estate, debts must be paid in the correct priority order, which broadly follows UK law:
- Secured debts (such as a mortgage)
- Funeral, testamentary, and administration expenses
- Preferential debts (for example, certain taxes or employee wages if relevant)
- Unsecured debts
- Interest on unsecured loans
- Deferred debts, such as money owed to family members
In some cases, you might not have the funds to pay all the unsecured debts. In this case, they should be paid on a pro-rata basis so that the largest creditor receives the largest share of the remaining funds.
Looking for debt support?
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