When a loved one passes away it can feel like a huge task to sort out their affairs. There are likely to be a lot of questions surrounding issues that you are unsure about, including what happens to a person’s debt when they die.
In this article we cover what happens to your debt when you pass away, and who is responsible for dealing with a deceased persons debt.
When a person dies, they can leave behind possessions, property and money, collectively known as their ‘estate’.
A person can also leave behind debts. This could be in the form of overdrafts, loans, outstanding mortgages etc.
After a person dies, any debts will become the responsibility of their estate unless it is a joint debt. This means that any assets left will be used to pay off those outstanding debts before any inheritance is passed on.
To find more on managing a deceased persons estate, see our article on What is Probate and When is it Required?
Joint debts can be loans or mortgages taken out in two names. Another example is a joint bank account that has an overdraft.
In most situations the outstanding debt will pass in full to the surviving person/people named on the loan.
For example, a joint mortgage in two names will pass to the surviving person to be paid in full.
Property and Mortgages
If the deceased was a sole owner of a property, then that becomes part of their estate. If there is an outstanding mortgage or debt, then the executor will usually use any assets to pay off debts. Depending on how much is owed, this could potentially involve selling off the property.
If the property / mortgage is jointly owned as joint tenants, although the responsibility of the mortgage will pass to the surviving party, your home will not form part of the deceased’s estate. In simple terms; both the property and mortgage will pass in full to the surviving party.
If the mortgage was taken out by joint owners under a tenancy in common, this is different. Following the death of a tenant in common, their share does not pass automatically to the survivor (as with joint tenants) but according to the deceased’s will or, if there is no will, via intestacy rules. The mortgage will usually continue against the property and responsibility for paying it will pass to the survivor.
If the deceased had life insurance or policies, this can be used to pay off any outstanding mortgages or debt when they die. If there is no insurance or life policies that can cover the outstanding debts, then the estate left will be used to cover the outstanding balances on loans, debts, credit cards etc.
Can debt be inherited?
In the UK, debt cannot be inherited, so family or friends will not become responsible for the individual debts of someone who has passed away.
The only time you will be responsible for an outstanding debt is if the debt or mortgage was taken out with you as a joint loan or if you have provided a loan guarantee.
What happens if the deceased had debts but no assets?
The deceased’s estate is used to pay off any outstanding debts. If there isn’t enough money in the estate to cover the debts in full, the debts can be written off by agreement.
Who is responsible for sorting out the estate and debts when someone dies?
The responsibility will fall to the personal representative of the estate. If the deceased made a Will, this is the person named as the Executor. If the deceased did not make a Will, an administrator will need to be appointed. This is part of the whole process known as “Obtaining Probate”. For more information on this see: What is Probate and when is it required.
If you are struggling with debts and repayments, the CAB can give advice on how to manage this.
Lindsey Rawson, head of our Wills, Trusts & Probate department, can help you create an estate plan, help draft a Will, support you to deal with a persons estate when they pass away and get all your affairs in order ready for retirement. She specialises in Wills, trusts, powers of attorney, probate and inheritance tax planning.
Lindsey acts for clients in South Yorkshire and beyond and can be contacted by calling 0114 249 66 66 or emailing email@example.com