What happens to debt when you die?

Dealing with the loss of someone close is an emotionally challenging and complex process. As well as dealing with grief and sorting out the funeral arrangements, there's another aspect to consider: the person's financial affairs, including any debts. 

Debt is any money owed to a person or organisation, whether it’s from credit cards, loans, mortgages or anything else. You acquire debt whenever you borrow money, and you have an obligation to replay it, often with interest added. 

When someone dies, bills and debts don't simply disappear. Instead, these obligations become part of their estate, subject to certain legal procedures and considerations. Someone’s estate is made up of everything they own, including all the money, possessions, investments and property – these are also often called ‘assets’. 

Understanding what happens to debt when a person dies is an important part of making sure that someone’s financial affairs are managed correctly and legally. 

In this article, we'll explain what happens to debt when a person dies in England and Wales.

Debts and probate

Probate is the process of dealing with the estate of someone who's died. Part of the probate process involves making sure that anyone owed money is treated fairly, while protecting the interests of those who might inherit the estate.

If the person who died left a will, it should name the executor(s) who have the responsibility of sorting out the estate (estate administration). If there isn’t a will, there are special rules to follow called ‘the rules of intestacy’. There’s a slightly different process to follow and the person who works to sort out the estate is called the administrator.

Whether or not there’s a will, sorting out any outstanding bills or money owed by the person who died is part of the probate process. It needs to happen before sharing out any money, investments and possessions according to the will or the rules of intestacy.

Step 1: Identifying the debts

The first step in managing someone’s debts is to make a detailed list of all their obligations. These may include:

• Personal loans
• Mortgage on any property (houses or flats)
• Credit card debts
• Bank account overdrafts
• Utility bills (gas, electric, water, etc)
• Tax obligations

Some debts you may know about, and some you may be able to find from reviewing paperwork. There are a couple of steps you can take to ensure you’ve found them all.

1. You can advertise for any unknown creditors to make themselves known. You can advertise in the London Gazette. If the person owned any property/land, an advert should also be placed locally. This creates a two-month window for creditors to come forward.
2. You can use asset and debt tracing services, which will highlight companies who have some record of the person who died. You can then contact those companies to find out if there is any asset or debt to be dealt with.

One type of debt which doesn’t have to be repaid is a student loan – you will need to notify the Student Loan Company (SLC) that someone has died, and provide evidence.

Once the debts are identified, you’ll need to gather all the relevant documentation together, including statements, contracts, and details of any person or organisation who might be owed money (creditors). Make sure to also check for any insurance policies which the person may have set up to cover any mortgages or debts.

Step 2: Informing creditors

The executor or administrator should tell creditors, and anyone the person paid regularly, as soon as possible after someone dies. Creditors then have the chance to file claims against the estate. The process will vary depending on the type of debt or bill. 

This step makes everything clear and transparent and allows anyone who thinks they are owed something to start the process of recovering what they’re owed. Keeping in touch and communicating clearly can help avoid problems further down the line.

Step 3: Prioritising debts

Not all debts in the estate of someone who dies are treated equally. There is a specific order which determines which debts need to be paid off first:

1. Secured debts (such as mortgages). These are typically tied to specific assets, such as a house, and the creditor can reclaim the asset (for example repossess a house) if the debt isn't paid.
2. Funeral and testamentary expenses. These include the cost of any funeral and wake, as well as any legal fees.
3. Priority debts (such as income tax and council tax).
4. Unsecured debts (such as credit card debt).

The estate is responsible for paying these debts in the order listed. Only after these have been settled can the remaining assets be shared out to those who inherit.

Step 4: Liquidating assets

The next step is to settle the debts by paying any creditors what they are owed. To do this people often sell things from the estate. This is known as liquidating assets.

• In the case of secured debts the asset may be sold to repay the creditor. For example a house may be sold to repay the outstanding mortgage. 
• For unsecured debts, assets like savings, investments, and personal belongings may be sold to cover the obligations.

If you’re selling something you should make sure that you know its correct value – you may need a professional valuation to make sure you know what things are worth.

It's important to keep in touch with those who are owed money. Sometimes it might be possible to arrange different methods or timescales for paying the money back – open communication helps.

Step 5: Insolvency and what it means for debts

Sometimes, unfortunately, someone may die and not leave enough money, possessions or property to cover all their debts. When this happens the estate is considered ‘insolvent’. 

In England and Wales, when an estate is insolvent, the order of debt repayment remains the same, but creditors may not get the full amount they’re owed. 

It's really important as an executor or administrator to follow the law, and make payments in the correct order to the best of your ability. If you’re in this situation, we recommend you talk to us about how we can help. The risk is that you could be held personally responsible for mistakes, and even have to correct them with your own money. Professionals can help you negotiate manageable repayment plans and make sure of the best outcome.

How Trustestate can help

Dealing with debt when someone dies can be a challenging and overwhelming process. It's important to make sure it's done correctly and follows the wishes of the person who's died.

Let Trustestate take out the hassle for a fixed transparent fee. We offer a simple, streamlined service with expert support at every stage.

What we offer

Use our Complete Probate service and we’ll manage every stage of the process – we’ll take over all the admin, apply to the court for probate, and share out the estate.

Or if the estate is simple and you have time, you can use our Grant of Probate service, and manage everything with our easy-to-use online platform.

Whichever service you choose, you’ll get dedicated advice every step of the way, and a dashboard to check progress at any time. Book a free call with one of our experts to find out more.

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