Death and debts
Many people believe that debts are written off when a person dies but frequently, that isn’t the case. And whilst dealing with the financial affairs of a family member who has died can be extremely challenging after experiencing loss, unfortunately it has to be dealt with and the sooner the better really. If you struggling to cope with it alone, I would advise to get some support from either a family member or friend, or you can get free support from a debt organisation https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator where advisors are specially trained to help you with these matters.
Gather details of their debts
Firstly, you will need to go through all the financial paperwork of the person who has died so you have all the information you need to understand everything that is owed. Each type of debt can be managed/paid off differently and therefore, you should identify whether they are secured or unsecured debts and individual or joint debts. In addition, you will need to find out whether a guarantor has secured any of these debts (eg. often this is requested of parents whose children may in student-rented accommodation whilst at university). The guarantor is then liable for any debt if it is not paid by the estate.
Secured debts or unsecured debts
A secured debt is where someone may have taken out a loan against an asset, commonly, a home. An unsecured loan is where someone may have borrowed money from a bank or another lender over an agreed period of time until the debt is paid eg. home makeovers/consolidation of credit card debt.
Note – A credit card can only be held in single name and the creditor can’t ask someone else (such as a relative) to pay off the debt. In some cases, there are companies who might write off the outstanding debt even when they are legally within their right to ask for it, so check with each creditor individually.
Individual or joint debts
An individual debt is a debt made in his or her name only eg. a credit card. A joint debit is where two people have taken out a loan in both their names and the most common usage of this would be a joint mortgage and/or a joint current account with an overdraft facility. With regards to property, the deceased person’s share of the property passes to the surviving owner but you wouldn’t necessarily be able to take over the mortgage as you’d have to apply for a mortgage and demonstrate that you were able to afford the monthly payments.
Note – Some mortgage lenders will offer a temporary mortgage break after a death certificate has been produced to give you time to sort out your finances and would wait for a property to be sold if the monthly payments are no longer affordable for you.
This one is a little more unknown and quite surprising! It may be that you discover a debt that that you knew nothing about so the best way to manage this is to place a ‘notice’ in The Gazette (the official public record of notices in the UK) on their website https://www.thegazette.co.uk/wills-and-probate/place-a-deceased-estates-notice.
This will tell creditors they can make a claim against the estate to pay off the debt which gives them time to come forward with their claim. Although you are not legally obliged to do so, you might put yourself at risk because if the estate is distributed and the creditor then comes forward, you may be personally responsible to pay it with your own money.
Paying off outstanding debts after a death
Step 1: Tell each creditor that the person has died
Contact the individual creditors and explain to them that the person has died and that you are going through the process of managing their estate. By dealing with this early on, you are avoiding further charges and the creditors are likely to give you some time to sort out the estate and they should stop taking payments from the deceased bank accounts unless it is a joint debt. I would recommend to request in writing the outstanding balance on the debt.
Step 2: Check if there’s insurance or Personal Protection insurance (PPI)
The next step is to check if the person took out any insurance to pay off the debt, eg life insurance and then you would need to check the terms of the policy for what you can claim as some policies, such as PPI usually only pay out for periods of unemployment or illness but not death. This money can then be used to pay off the debt.
What happens if there isn’t insurance in place?
You will need to speak to the creditors and agree how you will pay off the debts andtry and reach an agreement with the companies that are owed money.
If the debt is in a joint name:
ask them to take off your deceased partner’s name from the bills and transfer all future bills to your sole name
check the terms of the loan
renegotiate the repayments to an amount that you can afford if the current amount is too much for you to manage alone
If the debt is in a sole name:
ask for a statement outlining the outstanding balance on the debt
give them the name and contact details of the executor or administrator for the deceased person’s estate who will be responsible for ensuring that the debt is paid from the estate
you are only able to act as administrator of the estate if you have probate or a grant of administration
Step 3: Pay in order of priority
You cannot distribute any monies from the estate to anyone listed in the will until you have probate or grant of administration. The priority firstly, is to clear any debts which not covered by insurance policies and in order of importance.
secured debts, eg. monthly mortgage payments
funeral costs and financial outlay of administering the estate
unsecured debts, eg. credit cards, unpaid rent, taxes, repayment of overpaid benefits
Do consider whether there may be assets eg. a house or a car that might go towards the paying the debts. If the debts are greater than the amount the estate can pay back, this is called an ‘insolvent estate’ and I would recommend you seek legal support or advice from a specialist debt advisory service.
The government service ‘Tell us once’ can be a very helpful resource for reporting a death just one time and they will then deal with informing the relevant government authorities eg. pension payments, benefits, council tax, personal tax, etc and is available in most local authorities (you may need to check first). https://www.gov.uk/after-a-death/organisations-you-need-to-contact-and-tell-us-once#. You need permission from the next of kin, the executor, the administrator or anyone who was claiming joint benefits or entitlements with the person who died before you give their details.
I understand that some people may feel awkward or embarrassed about discussing financial affairs with a complete stranger, but these specialists are there to help you to make the right decisions and support you through the process and are likely to suggest ways to deal with debts that you might not have known about to make everything more manageable even when you think there is not any spare money to pay the debts. They can also advise you on making sure you apply for all the benefits and entitlements available to you. Contact the Money Advice Service (link above) to find one of the many organisations that can help you either on the phone, online or face-to-face to access appropriate support in dealing with money and debt after bereavement.
Please do let me know if you found this blog helpful.