What happens to a person's debt when they die?

When someone dies, it can often be emotional and challenging when it comes to dealing with their estate. When there is debt linked to the estate it can make the situation much harder to deal with. 

There are many misconceptions about debt and inheritance and it is essential when dealing with this, that you understand the position that you may be in. 

If someone passes away with debts, it must be dealt with as part of the estate administration process. It is important to note however that it is not always the case that relatives of the person who has left the debt are held responsible for repaying  them. 

What happens when there are debts on an estate?

Debts will typically be paid out of the deceased’s estate. An estate comprises all of their assets and this includes their cash, business interests, investments, their home and any other property that they may own. An executor or administrator will find out what debts the deceased has and whether there are enough assets to cover the debts.

What is the order of priority of debts on an estate?

Before the executor or administrator begins to pay off debts from the estate they must cover costs for the funeral and any administration of the estate.

Once they have a grant of probate or a letter of administration they can then start the process of paying off the debts before the money is then distributed to those named in the will. The order of priority of debts on estate is as follows:

  • Secured debts including mortgage repayments
  • Priority debts including council tax
  • Unsecured debts including credit cards

 

The executor may also  take assets including cars or valuables if there is debt to still be paid in an estate. 

Will the debt be passed to a spouse or a civil partner?

If the debts are in the deceased’s name only, then the debt will not be passed to a spouse, or civil partner. This will only happen if they provided a guarantee on the loan.

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