Someone may pass on while they have outstanding debt. Unfortunately, if this is indeed the case, the debt will not be forgotten. If a person passes with debt, it will still need to be paid off. Read on to find out how a person’s debt is paid off following their passing.
If someone passes with debt, the most common way to pay it off is to use the deceased individual’s estate to cover the cost. For instance, the deceased individual’s estate can be used to pay off outstanding debt. However, this depends on whether the individual had substantial assets, such as property.
A person’s estate can help to pay off debt after they have passed away. But what is an estate made of, and how does this method work?
A person’s estate is made up of cash, including insurance, investments, possessions, and property.
It is the job of an executor or administrator to handle the deceased individual's estate after they pass if there is no will. If the estate is worth above a certain amount, the executor or administrator will need to seek probate to gain permission to deal with the late individual's affairs. This will include paying off any leftover debt.
If somebody dies and does not leave enough money, an executor or administrator can handle their estate and use it to pay off any outstanding debts. This will be the priority, and only after this has been completed can anything be given to the people named in the will.
In the UK, debt is not inherited. However, your debt does not simply “die with you.” Family and friends are not responsible for the individual debts of the deceased, though a family member or friend can act as that person's executor or administrator and handle their estate.
You are only responsible for the deceased person’s debts if you had a joint loan agreement or provided a loan guarantee.
There are several different types of debt an individual may leave when they pass. An executor will need to sort out these debts after the individual has passed to work out what still needs to be paid.
The list below demonstrates how an executor will address outstanding debt after an individual passes:
Personal Loans, Credit Cards, and Credit Debt: If they take out any form of personal loan or still have credit card loans, these will need to be settled but will not be a high priority. An individual may be covered by a payment protection plan, and if the cards are held jointly, the joint holder will take responsibility.
Rent Arrears - If they are a joint tenant in a rented property, the remainder of the rent arrears will need to be paid off by their estate.
Mortgages - If they die before their mortgage has been paid off in full, this debt will need to be sorted out with their lender. The mortgage lender may have required life insurance to be part of their loan, in which case any remaining debt will be paid off in full. If the mortgage loan was not covered by insurance, the property attached to the mortgage might need to be sold.
Fuel Bills - If they have been living in a property jointly, their executor may be liable for fuel bill arrears.
Bank Account - If this account was in their name, no one will be able to touch the money until the estate has been completely sorted. Of course, if it was a joint bank account, then the other individual will still be able to access and use the account.
Once any outstanding debts are paid off by an individual’s estate and the executor has finalised sorting any remaining payments, the remainder of their estate may be divided between individuals named in their will.