What happens to debt when you die?

When someone in the UK passes away, any outstanding debts in their name are paid for by their estate, (the assets and savings in the deceased’s name).

But what if there's no estate for the outstanding debts to be recovered from?

You're only responsible for debts in someone else’s name if the debt is joint, or if you acted as a guarantor.

Being married doesn't automatically make you responsible for debt in your spouse’s name.

If no estate is present, or the value of the estate is not sufficient to cover the debt, debts will be required to be paid in a set order until the money runs out or the remaining estate can be split between beneficiaries.

Keep reading to find out everything you need to know about what happens to debt when you die in the UK…

Who is responsible for debt after death?

Upon passing, the distribution of the deceased’s estate and other assets will become the responsibility of an executor.

Before they can begin using the value of the estate to clear the outstanding debt, they'll need to pass through a process called probate - demonstrating their ability to manage the estate on behalf of the deceased and consequently, paying off the debts on their behalf.

The executor will then be responsible for ensuring the debts are paid accordingly and then the remaining value of the estate is distributed.

It doesn't become their personal financial responsibility.

What happens to debt if my partner dies?

As discussed, if your partner passes away you're not automatically liable for their debt.

However, jointly owning a property can lead to complications should your partner pass away with a significant level of debt.

The way in which you own the property will influence this.

Tenants in common refers to two people owning a specified share of a particular property.

As a result, the passing of one partner can result in their share of the property being required to clear outstanding debts in their name.

To prevent this, it's essential the surviving partner contacts the creditors to come to an arrangement about paying the outstanding amounts, to ensure the sale of the home is not required.

Joint tenants refers to two people owning the whole property together.

As a result, the passing of one partner means the surviving partner automatically inherits the entire property.

While this may offer more protection in terms of a forced house sale, creditors can apply for an insolvency administration order to recover any outstanding debts in the name of the deceased up to 5 years following their passing.

Therefore, to protect your home, regardless of your position relating to homeownership, you should contact the various creditors and attempt to come to some form of agreement.

Arranging life insurance to protect your loved ones

One of the best ways to ensure your loved ones are protected financially and receive as much of your savings and assets as possible is by arranging life insurance.

A life insurance policy will provide your loved ones with a lump sum pay out upon your passing, to be used as they deem fit.

Furthermore, writing your policy in trust can detach it from your estate, meaning regardless of debt you have in your name, it won't be used for this purpose.

Without writing your life insurance in trust, the pay out will form part of your estate, may be subject to inheritance tax depending on your estate value, and could be used as financial means for clearing any outstanding debt in your name.

At Reassured, not only can we provide you with all of the information you require to make an informed decision, but we can also help you write your policy in trust for free, (if this feature is offered by the insurer).

This helps ensure the very best for your loved ones should the worst happen.

Credit card debt after death

Loans and credit card debt are the last forms of debt to be settled upon passing.

As with other forms of debt, the estate will be used to cover any outstanding balances, but mortgages, rent arrears and fuel bills will be settled as a priority.

Only once these have been settled, will any remaining estate be used to cover any credit card or loan debt.

As mentioned, if there's no estate present, credit card and loan debts will be some of the most likely to be written off.

Although, should the loan or credit cards be held jointly, the surviving partner will become responsible for settling the outstanding balances.

Do you inherit debt UK?

As discussed, the only way you'll inherit debt from your loved ones will be if the debt existed as a joint agreement.

In this instance, the remaining balance will be inherited by the surviving named person.

The concept of inheriting debt in the UK is often confused with paying the outstanding debts from any inheritance a loved one may receive.

Before the inheritance can be received by loved ones, the value of any outstanding debts will need to be deducted. Therefore, affecting the monetary amount and assets loved ones will receive.

Debt in the UK is not inherited in the sense that it would become the financial obligation of any surviving loved ones if the deceased estate is not sufficient enough to cover the outstanding balances.

Can you inherit debt from your parents?

Again, you'll not inherit any debts under your parent’s names unless the loan agreement was in your name as well as theirs.

Although, if you were expecting to inherit a significant figure due to their estate, this value may be affected as outstanding debt balances in their name will need to be covered before you receive the remaining amount.

Complications may arrive however if you're living within their property and there's an outstanding amount on your mortgage.

If this is the case and both parents pass, the mortgage costs will need to be covered to prevent the house needing to be sold.

What happens to student loan if you die?

Regardless of the outstanding amount, in the UK when someone passes away their student loan dies with them.

A loved one will be required to contact the Student Loans Company (SLC) and provide both the deceased’s reference number and a copy of their death certificate.

At this point, any remaining balance will be written off.

Are executors personally liable for debt?

No. Whilst executors are responsible for carrying out the process of ensuring all debts are paid via the estate, they'll not be personally liable for funding the outstanding amounts.

The executor simply acts as a facilitator.

Are beneficiaries responsible for debts left by the deceased?

Whilst beneficiaries aren't responsible for debts left by the deceased, the share they receive may be affected by outstanding balances.

This is because, outstanding debts are paid for by the estate of the deceased, eating into the overall amount left to be distributed amongst beneficiaries.

If the value of the estate diminishes or was never in fact present, then the beneficiaries aren't liable to cover the outstanding balances personally, but they'll also not receive any monetary value in terms of an inheritance.

What happens to unsecured debt when you die?

In the UK, an unsecured loan will usually be written off when someone passes away. The exception to this is when there's a particularly large estate available.

Unlike a secured loan, which tends to be significant in value and requires some form of collateral (i.e. a house) should repayment be required, an unsecured loan is accepted purely on your credit history.

Often referred to as a personal loan, it doesn't take into account your assets and savings, but instead on your cash flow from a month to month basis.

Generally speaking, if a personal loan is required, it's likely a significant estate won't be present, and as a result of being one of the last types of debt to be covered by your estate, most unsecured creditors will not chase repayment if you pass away.

Debt repayment in the UK and life insurance

Whilst debt is not typically inherited in the UK, and outstanding balances are frequently written off when the estate is not significant enough, there's still the possibility of outstanding debt in your name causing financial disarray to those you leave behind.

Therefore, at Reassured, we consider it would be a benefit to most people in the UK to have some form of life protection in place.

Cover can be arranged from as little as 20p-a-day, and not only could it prevent financial hardship upon your passing, it could also leave a little extra behind for them to enjoy.

To get your free life insurance quotes, contact our team today and we'll discuss the best option available for you.

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