What happens to debts when a person dies?

As we explained in our article “Why should I instruct a solicitor to administer an estate” there can be lots to arrange following someone’s death and many of these tasks are best suited to a solicitor, who can often give you valuable advice. One area which can often be a cause of worry to many people is what will happen to debts when they die, which is a subject that we are going to explore in this article.

For people with debts, it can be troublesome to think of leaving these behind for family members or close friends to have to deal with when they die. However, this often isn’t the case.

When someone dies, the first port of call for the settlement of their debts is to take payment from that person’s estate (which is made up of investments, bank accounts, any property they own and also any other high value possessions like cars or jewellery). Once the person handling the estate, known as the executor or administrator, has been given permission through probate, they will then be responsible for paying off the persons debts from the sale of assets or through the money in their bank accounts.

Of course, not everyone has enough money to cover their debts when they die, and before anything is handed over to the beneficiaries of the will, debts must be cleared and they must be settled in a particular order.

First of all, the costs of funerals are to be met, for example paying for the cost of burial or cremation. Next, testamentary payments must be met; these are trusts in the deceased’s Will, which come in to effect after the person has died. After this, secured debts, such as mortgage payments, take precedence, followed by any unsecured debts such as credit cards and student loans. Once debts are dealt with, the process of transferring money to beneficiaries can begin.

If a deceased person dies without leaving enough money and other aspects of their estate are also not large enough to cover their debts then they will remain unpaid and their estate will be declared insolvent. If the executor or another person close to the deceased is still receiving contact from companies chasing the debt after the estate has been declared insolvent, then they should seek the advice of a solicitor who will be able to settle the matter with banks and other credit providers.

If the deceased person jointly owned property with a spouse or civil partner then that person will become liable for the mortgage on that property, however they will not become liable for any other debts, unless they were a guarantor.

Here at Rollingsons we are experienced in specialist areas of probate and wills. For more information or to arrange an initial consultation, please contact us on 0207 7611 4848.