Do my debts die with me?

Do my debts die with me?

There are two common myths about what happens to your debts when you die:

1. Your debt is automatically written off when you die
2. Your family members inherit and are responsible for all of your debt

Neither of these are correct.

The reality is a little more complicated. Technically, in England, your debts aren’t inherited, instead they are paid from your estate (anything you own) after you die.

Who is responsible for your debts when you die?

Personal representatives, otherwise known as Executors of your will are in charge of administering the estate of the person that has died. Part of their role includes:

• Collecting the assets
• Paying all debts
• Distributing the remaining estate to the beneficiaries.

They can also be held responsible by any creditors for debts.

This can be avoided by advertising in a local newspaper before paying the debts. This gives the creditors time to come forward with any claims so they can be paid on time.

However, in reality it works on a more case by case basis as how these debts are paid and who is responsible for them depends on the kind of debt you hold.

What are the different kinds of debts?

Not all debts are treated in the same way. So before understanding what happens to your debts after you die, you need to know what kind of debt you’re dealing with.

1. Individual debt:
   It is a debt which is in a person’s name.

2. Joint debt:
   It is the kind of debt that is taken out by two or more people (for example a joint mortgage).

3. Guaranteed debt:
   When a person makes a signed promise that they will be personally liable for someone else’s loan repayments if they can no longer make them.

4. Secured debt:
   It is a loan taken out against an asset the borrower owns, such as a house.

5. Unsecured debt:
   It is a type of debt is the opposite of a secured debt. It isn’t taken out against a particular asset. Such as credit cards bills and utility bills.

6. Undisclosed debts
   A debt or financial obligation that hasn’t been shared.

Who do my debts pass to when you die?

It depends on the kind of debt you have. We've broken it down to make it easier to understand below.

1. Individual debt:
   They are usually paid from the estate of the person that has died by the Personal Representatives/Executors of the will.

2. Joint debt:
   The remaining debt passes in full to the surviving person/people who took out the loan.

3. Guaranteed debt:
   The guarantor, will be liable for that debt after you die.

4. Secured debt:
   The the asset (such as a house) is sold to cover the debt when you die.
   If this doesn’t cover the whole sum, the remaining balance falls into the unsecured debt category, which is paid after all secured and prioritised debt (such as council tax bills) have been paid.

5. Unsecured debt:
   It depends. If they are household bills such as utility bills, and you lived with the person that’s died you may be liable to cover these debts.

6. Undisclosed debts
   The Personal Representatives/Executors of a Will may be responsible for these kinds of debts. This can be avoided if the Executors advertise in a local newspaper before paying the debts from the estate, as it gives creditors the chance to come forward with any claims so that they can be paid in time.

How can I stop debts passing to family members when I die?

Life insurance is a way of making sure that any debts are covered as it provides a lump sum payment to your loved ones when you die. This payment can cover debts so that they don’t fall to the people you love when you’re no longer around. It can help provide financial stability and continuity at a time when everything else will feel like it’s changed; helping give the people you love one less thing to worry about.

Life insurance can be especially relevant for those with significant debts or financial obligations, such as a mortgage (either in their sole name or joint), or renters. This helps to make sure the relevant payments are met, and that the people you care about don’t have to go through more change than is strictly necessary.

Find out more here.