Probate: What happens to debt after someone dies?

4 August 2021
Alex Boden, Solicitor TEP

Many people believe that when a person dies, the debt dies with them, but that is simply not the case.

Similarly, it is a widely held belief that family members are personally responsible for paying debts, but this is not always true.

In this article, we take a look at what happens to a person’s debts after they pass away.

When someone you love has passed away, the last thing you might be thinking about is debt. However, there are many misconceptions about debt and inheritance, and it is essential to understand your position.

What happens when there are debts on an estate?
If a person passes away with debt, debts will typically be paid out of their estate. The estate is made up of all of the person’s assets, including their home, cash, business interests, investments and any other property they may own. It is the role of the executor or administrator to find out what debts have been left behind and work out whether there are enough assets in the estate to cover the debts due. It is important to go through the deceased’s paperwork in detail in order to identify any debts owed and what type of debt it is. It is also important to find out whether there are any guarantors for any of the debts as the guarantor(s) may remain liable for the loan if it is not to be paid from estate monies.

When there is not enough money from available assets to cover all the debt, creditors will be paid out in a certain order until all of the money is gone.

What is the order of priority for debts on an estate? 
Before the executor pays off any debts from the estate, they are permitted to cover costs of the funeral and costs involved in administering the estate. Once they have a grant of probate, they can then begin the process of paying off the debts. Debts must be paid before any money is distributed to the beneficiaries due to inherit either by the terms of the Will or under the rules of intestacy. If there are assets such as a car or valuables, the executor may sell these to pay off debts on an estate. The order in which debts must be paid is as follows:

• Secured debts (for example, mortgage repayments)

• Priority debts (such as income tax and council tax)

• Unsecured debts (such as credit cards and utility bills)

Where there is not enough money to cover all of the debts, this hierarchy ensures the most important are paid off first.

What happens if a debt is held in joint names?
Where a debt is held in joint names, such as a mortgage, the surviving party who is named on the lending documentation will take on liability for the full outstanding amount.

Can debt pass to a spouse or civil partner?
If the deceased borrowed in their name only, the debt will not pass to a spouse, civil partner or any other person, unless they have provided a guarantee on the loan.

If you would like a free initial consultation with one of our specialist Probate team, contact us on 01244 356 789 or email info@cullimoredutton.co.uk

Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

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