What happens to debt when you die?

One of the tasks the executor may face after the death of a loved one is sorting out their debts and working out what still needs to be paid.

Can you inherit debt?

The short answer is no, debt isn’t inherited in the UK, and no-one else becomes responsible for the individual debts of the deceased, like credit card bills. This isn’t an absolute rule, however. For example, if someone had consented to be a loan guarantor or to be listed on a credit agreement while the deceased was still alive, they could potentially be liable.

Does debt die with you?

Not all debt necessarily dies with you. Debts may have to be paid off by the estate of the deceased, and joint debts could become the sole responsibility of the surviving partner. 

Types of debt

You may have picked up on the phrases ‘individual’ and ‘joint’ debt above, and not been clear on their meaning. So, before going any further, we should define some terms.

In the broadest sense there are four types of debt:

  • An individual debt is one where one person has taken it out in their name alone – a credit card debt is one of the most common forms of individual debt.
     
  • Joint debts are where two or more people take out the debt in both their names – a joint mortgage is the obvious example.
     
  • A secured debt is where a loan is taken out against an asset – like a car loan or a mortgage.
     
  • An unsecured debt is one that’s paid back in instalments, like a student loan.

Joint debts

Joint debts will generally still need to be paid-off after one of the partners has passed. Both applicants for a joint debt are equally liable before and after the death of the partner. For example, if the deceased was paying the mortgage, but the mortgage had been taken out as a joint mortgage by the deceased and their partner, the surviving partner would remain liable for the debt.

Sorting out the debts of the deceased

The Personal Representative of the deceased will need to contact creditors and explain the situation, asking them to send a statement outlining anything still owed.

In the case of an individual debt, like a credit card debt, the bank should immediately stop taking any scheduled Direct Debits from the deceased’s bank account. In the case of a joint bank account, the surviving partner becomes the sole owner of the account, and remains responsible for any debts.

With luck, the deceased will have put all the relevant documents together – including insurance policies – and will have let someone know where they are or even included such details in their estate plan.

Personal Representatives should remember to check paper records, computers, memory sticks, and cloud-based storage for digital versions of documents.

Debt and the deceased’s estate

While the Personal Representative is not personally liable for the debts of the deceased, those debts are likely to have to be paid from the estate of the deceased. Once the Personal Representative of the will has probate or grant of administration, the money from the deceased’s estate can be used to pay off any outstanding debts. If the money in the estate runs out before some debts are paid off, the estate is considered to be insolvent. If that applies, there is an order of priority to how the debts are paid. The payment of debts must be completed before the estate can be divided between heirs.

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