Debt after death: what do you need to do?


Senior woman having headache

A recent survey has revealed that death is the subject we're least comfortable discussing - even more so than politics, adultery or money. However, after someone dies, if they haven't covered the basics, it can leave those they left behind with a financial nightmare.... especially if they have debts.

So what should you do if someone you love died in debt?

Work out what debts they have

It's going to be the last thing on your mind in the immediate aftermath of the death, but you should be in contact with anyone they owe money to (both debts and bills), and let them know they have passed away. You don't have to sort out any outstanding debt at that point, but you need to inform them so that they can freeze the interest. It's also a good idea to ask them to send you a letter outlining what is owed.

If you don't know exactly what debts they have, then you'll need to get a copy of their credit report from an organisation like Experian. To get hold of this you will need to prove that the person has passed away and that you have the right to deal with their finances. For that you either need to send proof that you are the executor of the will, or get a 'grant of representation' from the probate office.

Once you have the credit report, you can simply send Experian a certified copy of the death certificate and they will contact the lenders to make them aware of the situation. Unfortunately some lenders will insist that you contact them direct - and send them another certificate.

It may seem like a complex thing to do when you are already coping with such a difficult situation. However, if you are receiving demands from credit card companies or mortgage companies then it's worth doing immediately because as soon as the lenders know about the death, they will stop chasing you for the money.

Arrange for the debts to be paid

For this, you need to go through probate. This means filling out a form with a list of all the deceased person's debts, and the value of everything they own. You then need to pay any inheritance tax from the estate, and you will be granted probate.

Once you have this, whoever is dealing with the estate needs to use the assets to pay off any debts. If there isn't enough in cash - including any life insurance - then it may mean having to sell assets - sometimes even the house of the deceased person.

If there isn't enough in the estate to pay the debts, then it's known as an 'insolvent estate' and the debts have to be paid in a specific order. First is secured debts like a mortgage, then reasonable funeral costs, then unsecured debts like credit cards, loans and bills. You will need to inform any creditors that you cannot pay that the estate is insolvent.

A number of people find this process tricky, and are concerned about doing it themselves. They can get probate specialist to help. However, if you can manage it then there's no legal reason why you should pay for help.

Joint debts

The rules are a bit different for joint debts, which have the names of more than one person on the credit agreement. These tend to be joint mortgages and loans. It's usually the case that the survivor becomes responsible for the entirety of the debt - although it's worth checking the terms of the agreement.

In the case of the mortgage, in the majority of cases people take out life insurance to pay off the outstanding mortgage in the event of their death, so check the terms of the insurance policy.

If you are left with sole responsibility for the debt, check whether the payments were coming out of the deceased person's bank account - because this will be frozen. If you can afford the repayments on your own, contact the lender and get the bills transferred into your name. if you cannot afford them, write to the lender and see if you can renegotiate the repayments.

Prevent identity fraud

It's a horrible thought, but fraudsters sometimes use the identity of someone who has recently died in order to commit identity theft - and use their name to apply for credit. Experian advises that it's worth combating this by making sure that all their existing accounts are closed, that their driving licence and passport are returned to the organisations that issued them. You also need to make sure that their name is removed from the electoral roll, and that they are registered with the mailing preference service.