Whether you’re curious about the status of your own assets or wondering what happens after a loved one passes away, our guide will help you understand what happens with debt after death
Who is responsible for paying debts after a death?
While none of us like thinking about our own death or a loved one passing away, it’s important to understand how debt could affect those left behind.
When it comes to paying debts after death, it all depends on the status of the deceased person’s estate. Estate is the term used to describe the assets that someone leaves behind and usually includes any property or land they owned, money remaining in their bank accounts, and any personal possessions.
Outstanding debts are known as liabilities and could decrease the overall value of the estate. Examples of common liabilities include a mortgage, any rent arrears, credit card balances, and utility bills.
If an estate has been left behind, someone will be appointed its executor or administrator. They will be responsible for settling any outstanding debts from the estate funds but won’t usually be personally liable.
How are different types of debt treated after death?
There are three main types of debt that may impact the estate of a deceased person:
Individual debts
These are typically unsecured debts that are solely in the name of the deceased person such as a credit card or personal loan.
Joint debts
These are unsecured or secured debts that were signed by both the deceased and another individual such as a joint mortgage or credit card.
Guarantor debts
These are debts that were in the deceased person’s name but also have someone else listed 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 the responsibility of any other surviving beneficiaries.
What should I do to handle debt after someone dies?
While it probably won’t be the first thing on your mind after a bereavement, getting in contact with the deceased person’s creditors is the first step to take when dealing with their outstanding debts.
Keep in mind that you may not be aware of all their debts, so it could be worth placing an advert in both The Gazette and your local newspaper asking for any creditors to submit claims. Ideally, the advert should appear for at least two months to give creditors enough time to come forward and offer you protection from liability.
The next step will be to make a list of all the debts and the total amount owed. The estate’s executor or administrator must pay the deceased’s creditors before any payments are made to the other beneficiaries.
In some cases, the deceased person may have taken out payment protection insurance (PPI) at the same time as a loan. If eligible, you could make a claim and use these funds to pay off the debt. However, if they only had a life insurance policy, these funds would usually go straight to the named beneficiaries and won’t need to be put towards the deceased’s debt.
Dealing with utility bills after death
It’s important to let energy companies know that the bill payer has passed away as soon as possible. They will likely ask for the deceased’s details, details of the estate’s executor, and whether gas and electricity will continue to be used in the property.
If another person, such as a partner or family member, is living in the property – and is planning to stay – they will take over responsibility for the utility bills. If no-one will remain in the property and the bills were only in the deceased’s name, any arrears should be paid by the estate. In cases where the estate does not have enough money to pay these arrears, the money will no longer be owed.
Dealing with water bills after death
Water bills aren’t priority debts but contacting the local water company should be on your to-do list after a loved one has died. Let them know what has happened and share any details that they request.
Just like utility bills, if a surviving partner or family member is planning to keep living in the home, they can take over the water bill and continue to make payments. If the property will be left empty, any arrears will become the responsibility of the estate. If the estate doesn’t have the funds available to pay back the outstanding debt, these will be written off.
Dealing with Council Tax after death
Notify the council of the death as soon as possible. If someone will be remaining 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. If no-one will be living in the home, any arrears will need to be paid by the estate but there’ll be written off if there isn’t enough money available.
What if the deceased person has no assets?
If someone passes away without any assets, all debts that are 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 likely ask you to supply a copy of the death certificate and they should then confirm that the account has been closed.
What is an insolvent estate?
An estate is considered insolvent if the total amount needed to pay the deceased person’s funeral costs, any associated admin costs, and outstanding debts is higher than the value of their assets. In this situation, things can get complicated and so you may wish to seek legal advice.
If you decide to pay creditors from an insolvent estate, debts must be paid in priority order as follows:
- Secured debts
- Funeral debts
- Priority debts
- Unsecured debts
- Interest on unsecured loans
- Deferred debt 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 percentage of remaining funds.
Looking for support with your debts? Our team of experts is here to help. Give us a call on 0161 8260 585 or send a message here.
