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What happens to debt when you die?

If you don’t make a plan, your debts might affect what you can leave behind for your family.

A common myth is that your debts die when you do. However, this isn't strictly true. Your debts will still need to be paid after you die, so you need to make a plan to pay them off and, hopefully, still leave something for your family to inherit.

We’ve broken down the key things you need to know.

Please note: the information in this article relates to England and Wales. There are some differences in Scotland and Northern Ireland.

What happens to your debts when you die?

Debts that you leave behind when you die are paid using any money that you had in your bank accounts or by selling things you owned such as your home.

The "executor of the estate" will need to arrange this. This is the person who is named in your Will as being responsible for sorting out the admin after you die, including figuring out what happens with your money and debt. This can be a solicitor or a friend or family member.

The executor doesn't have to pay the debts themselves, they just need to make sure they are paid whether that's by moving money from your bank accounts or by selling things you owned.

When your executor pays off your debts, they'll do it in the following order:

  1. Secured debts. These are loans that have collateral, meaning loans that are backed by something you own, such as your mortgage or a car loan.
  2. Priority or preferred debts. These are debts to local or central government, such as income tax or council tax.
  3. Unsecured debts. This includes any unpaid utility bills, credit cards, interest due on unsecured loans and even informal loans between family members.

If there's not enough money to pay your debts off completely, then your estate is said to be "insolvent".

If that happens, the executor needs to post a notice of the insolvent estate in The London Gazette. The London Gazette is an official journal of record for the British government, and is checked by creditors to make sure they get the money they're owed.

If the correct procedure isn't carried out, the executor could be held responsible by the people or organisations that you owe money to. So if you're the executor of someone's estate, you should get advice especially if they have more debt than money and assets.

Your estate is the sum of your property, money, and other valuable things you might own. If there isn’t enough money in the estate to pay off everything owed, it becomes an ‘insolvent estate’.

The Executor of the Estate is usually a solicitor but sometimes a spouse or relative, and are responsible for ensuring these debts are paid.

In the case of the estate being insolvent, the Executor will need to tell the creditors that there won’t be enough money to foot the bill.

Can you inherit debt?

When someone dies in the UK, technically no-one inherits their debts.

Debts are paid out of the person's estate, which does mean that there is less money and belongings to inherit.

But if there's not enough money to cover your debts when you die and your estate is insolvent, there are a few cases when your family might have to pay for your debts:

  • Anyone who lives in the same home as you may need to pay any household bills that haven't been paid, even if they're not in their name.
  • Any financial product that you share with someone will become their responsibility, such as a joint loan or mortgage, even if they weren't making payments before you died. This is also the case if someone is a guarantor for a financial product for you.

What happens if you owned a property with another person when you die?

If you own property with someone when you die, whether or not they inherit your share depends on whether you own the home as “tenants in common”, which means that both of you own a share of the property, or “joint tenants”, which is when you own the whole property together.

  • If you own the property as tenants in common, your share becomes part of your estate when you pass away. This means your share of the property can be used to pay off debts, so the other person might have to sell the home to release the money.
  • If you were joint tenants, your share never enters your estate and instead passes straight to the person who owns the rest of the property.

Debts you might leave behind when you die

Secured debts

Unless you have insurance in place, your mortgage is paid off when you die by your property being sold. If this doesn’t cover the full amount, whatever's left will is called "unsecured debt". Unsecured debts are debts that can't be paid by selling whatever was bought with the money.

If you left your property to someone in your Will, they can choose to keep paying the mortgage instead, but your mortgage lender will need to decide if they can afford to do so.

There are a few exceptions to this rule when you own property with someone else or if someone is living in a property that you own. 

Priority or preferred debts

This is any money owed to local or central government, such as income tax and council tax.

Preferential debts

This refers to any wages or National Insurance contributions that you need to pay. This would apply if you owned a company, privately employed someone or were given direct payments for employing carers.

Unsecured debts

Unsecured debts are debts that don't have any assets linked to them, unlike a mortgage or a car loan for example.

This can include credit cards, student loans, personal loans, loans to family members and unpaid utility bills.

Funeral expenses

Funerals can be expensive. Having a funeral plan can help cover the cost as you’ll pay for some, or all, of your funeral costs in advance. 

It's worth being aware that costs might change and some things, like headstones and personal memorials, aren't included in funeral plans so there could still be some costs left for your family to cover.

You can also write in your Will how you want your funeral to be and how you’d like it to be paid for.

Admin costs

There are a few hidden costs that can come up when dealing with someone’s estate when they pass away, such as estate agent and solicitor fees, writing letters and sending death certificates. These costs will come out of your estate.

Does paying off debt take priority over inheritance?

Yes. It's a legal requirement that your debts are paid off before anything is given to the people in your Will.

This could mean selling a home that someone is already living in or letting go of something sentimental that’s been in the family for a long time.

Read our What is probate? guide to learn more.

When insurance might help

There are a few ways insurance policies can help protect your families from the impact of debt when you pass away.

Mortgages can be protected by insurance. If you have a mortgage with someone else, this insurance can prevent that person from inheriting your share of the debt when you pass away.

Credit cards and loans can include payment protection plans that could help clear the balance if you died.

Your employer might have offered a ‘death in service’ payout that could pay debts if you happen to pass away while still working.

Some life insurance policies, such as over 50s life insurance, let you write the insurance policy into trust, meaning you can name who you want the money to go to. 

Our Over 50s Life Cover is a life insurance policy designed to help give you and your loved ones peace of mind at a difficult time. It includes Funeral Funding, meaning that you can choose to have the proceeds of your policy go towards paying for your funeral, with the funeral provider contributing £300. It can also be used to help pay off your outstanding debts when you die or to leave a gift for your loved ones.

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