Debt & Death
Debt and Death
Death, like debt, is something none of us likes to consider. We would prefer to avoid both and neither is a subject most of us feel comfortable discussing. However, whereas debt is often avoidable, death is not and we will all face it at some point. Some of us may even worry that should something happen, to us, we may be leaving a problem for our loved ones to deal with.
So can someone else be responsible for our debts after we die? What happens when debt and death cross paths?
There is a common misconception that when someone dies, his or her debts die with him or her, but this is not actually true: there are a number of situations in which creditors can continue to pursue people for the payment of other people’s debts, even after they have passed away. There are other situations when those that remain for practical purposes have to accept responsibility for someone else’s debts.
Below we look at the circumstances when someone else can be responsible for your debts.
One of the most common ways this can happen is if someone is appointed as the Executor of your estate, or if you do not have a will, they take on the role of winding up your estate, either with a court’s approval or not.
Normally, executors are not personally liable. However, it is their responsibility to ingather all the debtors’ property and to distribute it according to a particular set of rules. This means secured lenders get paid first, then after reasonable funeral expenses are paid, the remaining debts are paid. If an executor does not follow this order and there is not enough money to pay all the deceased’s persons debts, they can personally be held liable for the funds that should have been paid to the creditors.
In such cases, where the debtor’s estate is insolvent, that is unlikely to pay all the debts owed, an executor should seek professional advice first, as in Scotland they may have to sequestrate the debtor’s estate or in England and Wales seek an insolvency administration order from the court.
Where there is a joint debt, which may mean a joint personal loan or mortgage, the death of one of the parties to the debt does not affect the liability of the other borrowers. They remain liable for the full amount, unless the terms of the agreement say otherwise, or there is a policy that is payable on the death of one of the borrowers.
Council Tax and Water Charges
This is a type of debt where another joint adult occupier living in the home will be liable for the debt, even if his or her name is not on the bill. However, they may be entitled to a single person discount going forward and should contact their local authority.
If someone has granted a personal guarantee for someone else’s debts, their liability can be founded upon on the death of the principal borrower. However, in such situations, advice should be sought to ensure the personal guarantee is valid.
Hire Purchase Debts
Normally if the debtor had a hire purchase debt, such as for a car or a washing machine or cooker, no one else is liable for them. However, the lender would usually expect the items to be returned. If someone wants to keep them, they will normally have to agree to take on the debts.
If the property the person lived in is rented accommodation and there is a joint tenant, the surviving tenant will normally be liable for any outstanding rent arrears. Equally, even if the tenancy was not a joint tenancy, but another person in the household has a right to succeed to the tenancy, they will normally have to accept responsibility for any arrears to succeed to the tenancy.
Where someone else lived with the deceased person prior to them dying and there are fuel bills outstanding, sometimes the energy provider will argue that the person remaining in the home remains liable as a beneficial user. The argument is as they benefitted from the services provided they are liable, even if their name is not on the bill. This can be a complicated area and advice should be sought.
Survivorship Clauses – Scotland
In Scotland, when a husband and wife jointly own a property, there is normally a clause in the title deeds of the property known as a survivorship clause. This means both parties own the house jointly, but on the death of one party, the remaining party becomes the sole owner of the property automatically.
However, the courts have held in such cases, where you survive the other owner, you become fully liable to all their creditors to the extent of their value in the property that was transferred to you. This can include liability for not just secured debts, but debts like credit cards and loans.
This area of law can be complicated, whether you are the person left to deal with debts owed by someone who has passed away or whether you are worried that if something was to happen to you, you would leave your family with your debts.
At Creditfix we understand that debt can worry people, not just because the effect it is having on them, but also on their family. We also understand why it is important for people to deal with their problems now. Our advice is to seek advice sooner rather than later. Many of the problems we witness daily are avoidable with early intervention.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.