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Does it end with your life or land on your loved ones?
What happens to debts when we die is something most of us don’t really want to have to consider.
But it’s a topic that causes much confusion, both in life and after death. And it’s one that can have a huge impact on those we leave behind.
We asked an expert at debt charity Step Change what happens to your credit card debts if you die and whether your family members inherit them from you.
What happens to your debt if you die? Credit card companies will take payment from your estate after you die
Andrew Shaw, debt advice policy coordinator at StepChange Debt Charity explained the rules for those living in England and Wales:
It is sometimes said that ‘your debts die with you,’ but unfortunately that isn’t always the case. Sometimes creditors will voluntarily write off or choose not to pursue the debts of a deceased person, but they don’t have to.
Alternatively debts may be covered by insurance policies – but if not, they will still be outstanding.
HOW THIS IS MONEY CAN HELP How to get out of debt: Your ten-step plan to getting your finances back under control
If a debt is in joint names, responsibility will automatically pass to the surviving account holder. However credit cards aren’t issued in joint names – an ‘additional cardholder’ won’t take on responsibility for a credit card debt if the account holder dies.
Any outstanding debt owed by the deceased person at the time of their death will be repaid from the proceeds of their estate as part of the probate process.
If this isn’t sufficient to repay all the debts, the estate is insolvent and could be subject to an ‘insolvency administration order,’ which is a kind of bankruptcy for a deceased person’s estate.
A trustee will be appointed to distribute the proceeds of the estate fairly between all the creditors. Either a creditor or the representatives of the deceased person can apply for an insolvency administration order.
If the deceased person jointly owned a property with someone else, the way the property is dealt with depends on how the joint ownership was constructed.
If both parties owned the property on equal terms – a ‘joint tenancy’ – the property passes automatically to the surviving person, so the creditors can’t force the sale of the property.
However, if an insolvency administration order is granted, the surviving person may have to pay the value of the deceased person’s interest to the trustee.
If the joint owners were ‘tenants in common,’ which means that they owned separate shares of the property, the deceased person’s share forms part of their estate and the creditors can force the sale of the property to recover their money.
Anyone who thinks their home may be at risk due to the debts of a recently deceased joint owner should get legal advice as soon as possible.
Once the estate has been dealt with, relatives have no responsibility for any remaining debts.
Emma Gunn of This is Money adds:
If a loved one dies, there are a few steps family members can take early on to help avoid any confusion with lenders and to help make settling outstanding debts happen more smoothly.
We often hear of companies sending bills addressed to those who have died, or failing to close their account and then chasing them for late fees and penalties, harassing loved ones when they are grieving.
It can be easier and less traumatic to therefore make a list of all of a family member’s debts or credit contracts and contact banks and lenders early to let them know.
Where to get help
You may be eligible for bereavement support payments if it is your husband, wife or civil partner who has died. You can find out more about this here.
Don’t forget life insurance policies may help clear the deceased debts, for example if they have been set up to pay the mortgage.
Unfortunately most PPI policies won’t cover death according to StepChange, but it is always worth checking.
Don’t forget, there is a whole heap of help and advice out there if you are dealing with debt.
This is Money has put together a 10 step plan to help get out of debt which you can read in full here.
You can also get free help from debt charities and advice websites, which have guides and factsheets or let you speak to an adviser who can help explain your options.
The Debt Advice Foundation
This could include insurance, mortgage, loans, store cards, credit cards, and savings, pension and the student loans company.
This will stop them adding to the debt or bills with late fees and extra charges.
Sometimes they may require documentation, so it can be worth taking extra copies when you come to register the death.
It’s worth making a note of when you contacted them, who you spoke to and filing away any correspondence in case there is any dispute in the future.
Don’t forget to include any utilities companies on this list too, from energy companies to mobile phone contracts.
Some may not allow you to cancel the contract, but it is worth asking. If there is an outstanding balance, or payments due this will be taken from the estate.
Remember, as mentioned above, the rules are slightly different when it comes to joint banks accounts or other joint credit such as loans or mortgages as you may be held jointly liable after a partner dies.
Unfortunately this doesn’t mean debts are split straight down the middle, and you will end up wholly liable for the amount.
Again the key is to reach out to banks as early as possible and if you are likely to struggle with payment, to let them know as they may be willing to set up a repayment plan or offer a repayment holiday.