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Death Does Not Extinguish Debt

People are naturally reluctant to think about dealing with the debt of a loved one after their death and it becomes even more difficult to handle such matters when the debt is unexpected and no provisions for its repayment have been made.

Many people assume that debt will be written off upon the death of the borrower; however this is not generally the case.

When a person dies, all of their assets are collected to form their estate, which is overseen by someone named in their Will or the next of kin if there is no Will.  In both situations, any debts left are paid out of the estate.  The Executor or Administrator is obliged to collect in any money or property the deceased left behind and start covering any unpaid debt from the estate.

If there are not enough assets to cover all the debts, bills will need to be paid in order of priority.  Mortgages are the first type of arrears that need to be addressed; second comes rent dues, followed by water bills, council tax, fuel, loans and credit cards.  The beneficiaries will be able to enforce their rights only when all the accumulated debt has been repaid.

No one else has to pay for the debts unless they are already liable under the terms of the original agreement, so perhaps if the debt is in joint names or someone has signed as a guarantor.  If the money left in the estate is not sufficient for covering outstanding debt and you jointly owned a house with the deceased person, for example, you could be obliged to sell the property to meet creditors' demands.

It is also the Executor's or Administrator's responsibility to decide in cases when there is money owed to the deceased person, especially when there is a written agreement in place.  If, however, the borrower and the lender had agreed on the debt on a casual basis, it will likely remain irrecoverable since it could be impossible to prove.

If you would like advice about probate or dealing with debt as part of the estate administration process, please call our free Probate Advice Line on 0300 303 9000.