If a family member dies and they owe money on credit cards, household bills or their mortgage, how do you sort it out and who has to pay their debts? Find out about dealing with debts when someone dies.
Dealing with debts when someone dies – a step-by-step guide
Lots of people think that debts die when the person does. But that’s often not the case. Debts usually need to be paid and that could mean that the house (if there is one) has to be sold. If someone’s died and there’s a will, the executors will be responsible for paying any debts. If there’s no will, it’s the administrators.
Step one: Find out if there are any payment protection insurance (PPI) or life insurance in place that will pay off credit card debts, the mortgage or loans.
Step two: If regular payments are being made to a loan, mortgage or credit card, for example, these should be stopped unless it’s a joint loan or mortgage.
Step three: Find out what rights companies may have to ask for a debt to be repaid. Depending on the company involved and the amounts owing, they may write off the outstanding debt, even where they have a legal right to ask for it.
Step four: The company should ask for payment via the executors or the administrators. If there’s not enough money in the estate (cash, property and other assets left behind by the person who died) to pay all the debts, the executors or administrators should try and reach an agreement with the companies that are owed money.
SAVVY TIP: The bank may outsource dealing with loans or debts where there’s been a bereavement to a third party company that specialises in managing accounts where someone has died. I spoke to a debt advice charity about this and they said that while this can be a surprise to a family member, it is often a good thing as the company in question should have specialist skills and procedures in place.
Credit cards, credit agreements and loans
These credit agreements aren’t linked to your house (or another asset). But that doesn’t mean that the house won’t have to be sold to repay them. If the person who died left behind enough money to pay the debts, they have to be repaid.
Credit cards: The regular payments to the credit card should be cancelled. However, if there’s money owing, the bank or credit card company can ask for the outstanding debt to be repaid. But a credit card company can’t ask someone else (such as a relative) to pay off the debt.
SAVVY TIP: You can’t have a joint credit card in the UK. Unless your name is on the credit card agreement, you’re not liable for the debts, even if you had a credit card attached to that account.
Loans: Loans should be repaid from the estate. However, unless it’s a joint loan, the bank or card company can’t ask anyone else to repay the debts out of their own money.
Hire purchase agreements: If someone has bought a car on a hire purchase agreement, the car doesn’t belong to them until the last payment has been made. The hire purchase company can’t simply take the car because payments haven’t been made as long as a third of the money owed has been repaid (instead it would have to go to court). Dealing with hire purchase agreements can be complicated, especially if a family member wants to keep the car, so talk to a debt advice charity if your loved one has a hire purchase agreement.
Mortgage or rent
Mortgage and rental costs may have to be paid, either from the deceased person’s estate or by someone else if there’s a joint mortgage or rental agreement in place.
Mortgage: If the mortgage is in the sole name of the person who died, the outstanding mortgage would have to be paid. The monthly payments should stop but the mortgage lender can ask for all the outstanding mortgage to be paid. That may mean that the executors or administrators have to sell the property. It is something that a mortgage lender could force the executors to do, although they should give you time to sort out the legalities and to put the property on the market.
If you own the property jointly (as joint tenants) and have a joint mortgage, the deceased person’s share of the house or flat automatically passes to the surviving owner. But you wouldn’t automatically be able to take over the mortgage. You’d have to apply for the mortgage and show you were able to afford the monthly payments.
SAVVY TIP: If there’s a life insurance policy attached to the mortgage, such as term assurance, or life insurance as part of an endowment, that should pay off the mortgage in full.
Rent: If the rental agreement was in the name of the person who died, the rent should be paid from the estate. The tenancy may be able to be passed onto members of the family, even if it’s only in one person’s name. Talk to the housing charity Shelter or Citizens Advice if you’re not sure what happens. If the tenancy is in joint names, the survivor must continue to pay the rent.
Different household bills are treated differently – it all depends on which bill it is and, to some extent, the approach of the company.
Energy bill arrears: If the energy bill is in joint names, then the person who’s still alive will be responsible for continuing to pay the energy bill. If it’s only in the name of the person who’s died, the energy company can’t ask someone else to pay. However, it can ask for any money that’s owing to be paid from the estate of the person who’s died.
Council tax: This is unusual because, unlike most bills, the council can ask the husband, wife or partner of the person who died and who was living with them to pay any money owing – even if their name wasn’t on the bill. If you’re living with someone who dies and your name isn’t on the council tax bill, the council would have to send you a bill in your name.
SAVVY TIP: If the person who died lived in the property on their own, the executors should tell the council. The property won’t be charged council tax while it’s unoccupied and until probate is granted. After probate’s been granted, it may be exempt from council tax for another six months. It’s the executor’s responsibility to make sure that council tax is paid, although they’re not personally liable for it (namely, the money has to come from the deceased person’s estate).
Water bill: If you live in the property with someone who’s died, you are responsible for any arrears on the water bill, even if your name isn’t on the bill.
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