Can You Inherit Debt? 

Are you worried about inheriting debt from a family member? You’re not alone. Each month, over 170,000 people visit our website seeking advice on debt issues. 

In this article, we’ll go through:

•  The truth about inheriting debt in the UK
•  How different debts are settled after someone passes away
•  The role of insurance in debt matters
•  How to deal with debt if there are more debts than assets
•  FAQs about debt inheritance to clarify all your doubts

Some of us have been in the same boat, dealing with shared debts and the fear of inheriting them. That’s why we’re committed to giving you clear, helpful advice. 

So, let’s dive into the topic and explore the 2023 laws on debt inheritance.

When Can It Be Inherited?

So, this means that you can inherit debt but only if this was decided back during the actual debtor’s life.

This works if, during their life, the person had put your name in the will, and you had provided a personal guarantee that you would take over the responsibility of their debt in case they pass away.

Another similar case is when you cosigned the debt, or the deceased person had taken debt from a joint bank account that they shared with you. Then, you are equally responsible for the debt.

Dealing with the Debts of Deceased

It is important to know that although when someone dies, the debts of the deceased are paid off through their estate, property, etc., there is a particular priority order adopted for it.

Your secondary loans and debts are paid, but not before some other essential debts, costs, etc., are taken out of your savings.

Funeral Expenses

Although to arrange the burial and funeral of the deceased, the next of kin is to be traced, the person responsible for the burial is allowed to access the deceased’s properties in order to pay for the arrangements.

In other words, there is no financial obligation on anyone to arrange the burial costs if someone dies.

Even before the debts can be paid, the person is allowed to use the deceased’s savings for their funeral expenses.

Joint Debts

There are some clauses if you have joint debts. If two people have a joint debt, a joint loan or a credit agreement, the outstanding debt will pass to the surviving person.

The only other way this can work is if some insurance policy applies to the debt, and it is paid off through that.

Secured Type

As far as debts that are secured against assets are considered, there are two likely situations.

If the assets was the lone property of the deceased, then it is used to pay off the debt.

But if it’s a joint property, then all the assets are passed on to the remaining owners, and so is the debt.

Therefore, the debt is the responsibility of the second owner – or so on – of the assets.

Unsecured Type

Even if the debts aren’t secured, the claimants can see the deceased’s properties and assets to claim their fair money.

However, unlike secured debts, unsecured debts aren’t on top of the priority order and thus can only be cleared after some essential expenses are made.

Individual Debts

Individual debts are the expired person’s sole responsibility and are not passed on to anyone, no matter what the consequences. 

These debts are paid back in terms of estate, property, or any savings that the person left behind.

Undisclosed Debts

Sometimes, you can expect that you do not know everything about the deceased’s debts and might be unaware of some of the money they owe to the claimants.

To fix this problem, it’s suitable that you place an ad in the newspaper regarding the deceased’s estate for any creditor to come forward to the claim.

Even though you could leave this and not follow up with any unknown creditors, it is safe if you do contact them.

This is because if you personally distribute the assets and then other claimants come forward, you will have to pay them from your own pocket.

Testamentary Expenses

These expenses are basically claimed by the people who take responsibility for the deceased’s assets, their distribution, etc.

Testamentary expenses are also paid through the same assets and are considered a priority in the order of priorities.

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How Are Various Debts Paid Off After a Person Dies?

Since the debt doesn’t automatically wipe off on a person’s death, there are a number of ways through which creditors claim their fair money.

For your ease, I’m mentioning the major ones.

Rent Arrears

If a deceased person leaves behind rent debt on property that they shared with someone else, then the other person (e.g. roommate, spouse, etc.) becomes wholly responsible for those rent arrears after the previous person passes away.

So, if you share a property with someone who died, their debt becomes your responsibility.

Mortgages

There are two ways mortgages are handled.

If there is a life insurance policy involved, the life insurance pays off the owed amount. Therefore, always check if you have death cover life insurance for the mortgages.

If not, the concerned property left behind by the person is to be sold.

A note about joint tenants

If the property is held as tenants in common (otherwise known as joint tenants), the deceased could specify in their will the beneficiary who will get their share of the property. That person might decide to keep making mortgage payments in order to retain the property.

Bank Account

If the person who died had taken a loan from a joint account that they shared with you, you are responsible for all their debt after their death.

Whether you took the loan with them or not, as long as you share the account, you are responsible for it.

Savings

Just like the estate and property are used by the creditors to take their money from the deceased person’s assets, so are the savings.

All the person’s savings are passed on to the claimants before any can be passed on to their family, etc.

If there is not enough money in the deceased savings to pay off all their debts, the remaining money owed will be written off.

Credit Card Debt & Personal Loans

Debts on credit cards or personal loans are secondary debts. 

This means these debts are only settled after the other priority debts are eliminated. So, what happens to credit debts after death?

If there is still estate held by the person, they are used to pay the claimants of a credit card debt, or so on.

Remember that if the credit cards were shared by more than one person, then the other people would be responsible for the debt.

But if credit cards are covered by payment protection plans and life insurance, the debts are not taken out of personal property.

Tax Debts

Tax debts are priority debts.

This means that any tax that is owed by the expired person is instantly claimed through the estate.

Fuel Bills

Just like rent arrears, fuel bill arrears are settled in two ways.

If more than one person shared the bills, the person left behind is responsible for the debt.

If they were not shared, the owed money is taken from the deceased person’s property and savings. 

What if there are More Debts than Assets? – Insolvent Estate

When the estate is insolvent, it means that the deceased person has more debts than assets, and there isn’t enough estate to pay off the debt.

This means that even if all the estates are handed over to the claimants, the debt is not gotten rid of, and some of it has to be wiped off.

This also means that anyone who was to inherit the assets of the person will get nothing.

You must pay these in a specific order: secured debts before the funeral costs then priority debts such as income tax and council tax, and then unsecured debts.

Do All Debts Die with You?

No. 

The only time when your debts are cancelled or wiped off after your death is when your property/estate isn’t enough to pay off the debt completely.

Surviving relatives, executors, or beneficiaries of the will shall not be held liable for any outstanding debts.

However, in some cases, someone else is responsible for your debt after your death. This happens if you had already chosen them in your will for the credit agreement.

So, if you had already agreed that a specific person would be responsible for your debts after your death, then that person has to pay off your debts.

If that person tries to escape the responsibility of debt despite providing a personal guarantee previously, the creditor can sue them.

Does Insurance Help?

Yes, but having a life insurance policy isn’t the only kind of insurance to consider.

Insurance is a great way to get rid of the deceased person’s debts.

So, before claimants try to claim the estate left behind, check if the person who died had life insurance or even mortgage death cover insurance. They may have also had a payment protection plan for personal loans and credit card loans, etc.

In fact, if a person dies in service, a good sum of money is always given to him from his pension.