Dealing with the loss of a loved one is an emotionally challenging and complex process. In addition to the grief and logistics of funeral arrangements, there's another aspect to consider: the person's financial affairs, including their debts. When someone passes away, their debts don't simply disappear. Instead, these obligations become part of their estate, subject to certain legal procedures and considerations. In this article, we'll explore what happens to debt when a person dies in England and Wales.
Probate is the legal right to deal with the estate (property, money and possessions) of someone who’s died. It's the responsibility of the executor named in the deceased's will to settle the estate. If there is no will, the rules of intestacy must be followed.
Step 1: Identifying the Debts
The first step in managing a deceased person's debts is to compile a comprehensive list of all their obligations. These may include:
Once the debts are identified, it is essential to gather all relevant documentation, including statements, contracts, and creditor information.
Step 2: Informing Creditors
The executor should notify creditors of the death as soon as possible. Creditors are then given an opportunity to file claims against the estate. This step ensures transparency and allows creditors to assert their rights to recover what is owed to them.
Step 3: Prioritising Debts
Debts in the deceased's estate are not all treated equally. There is a specific hierarchy that determines the priority of debt repayment:
1. Secured debts (e.g., mortgages) - These are typically tied to specific assets, such as a house, and the creditor can reclaim the asset if the debt isn't paid.
2. Priority debts (such as income tax and council tax)
3. Unsecured debts (such as credit card debt)
The estate is responsible for paying these debts in the order listed, and only after these have been settled can the remaining assets be distributed to beneficiaries.
Step 4: Liquidating Assets
To settle these debts, assets from the estate are often sold. In the case of secured debts, the property or asset may be sold to repay the creditor. For unsecured debts, assets like savings, investments, and personal belongings may be sold to cover the obligations. To obtain the correct value of assets, you may need a professional valuation.
Step 5: Insolvency and What It Means for Debts
In some cases, the deceased person's estate may not have sufficient assets to cover all the debts. In this scenario, the estate is considered insolvent. In England, when an estate is insolvent, the order of debt repayment remains the same, but creditors may not receive the full amount they are owed. It's crucial for the executor or administrator to manage the situation according to the law and prioritise payments to the best of their ability. We would always recommend that the executor seek professional advice, as they risk being held personally liable for mistakes made.
Dealing with the financial aspects of a family member's passing and obtaining grant of probate can be a challenging and overwhelming process. But understanding what happens to debt when a person dies in England and Wales is crucial to ensure that the deceased's financial affairs are managed correctly and legally. The probate process is designed to help navigate these complexities and ensure that creditors are treated fairly while protecting the interests of beneficiaries.
Sorting the estate can be challenging but Trustestate can help
Probate and estate administration can be complicated, but it’s important to make sure it’s done correctly and follows the wishes of the person who’s died. Our platform lets you manage the whole probate and estate administration process online, from start to finish.
We apply for you, using information you provide
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HM Courts and Tribunals Service probate fee for estates over £5,000 - +£273.00
Additional grant of probate copies - +£1.50
Third-party services, such as an asset and liability search - Optional