What Happens to Debts When Someone Dies

When someone dies, their debts are paid from their estate, the money and property they leave behind. In the UK, debts are not passed down to family members, but they do not disappear either: depending on the debt, they may need to be paid out of the estate¹. If the debts were in the deceased person's sole name and they had no assets, the debts will not be owed by anybody else².

That is the short answer to the question most people are really asking. The longer answer depends on three things: whether the debt was in one name or joint names, whether anyone guaranteed it, and whether there is any money in the estate. If there is not enough to cover everything, debts are paid in a set order and the rest is usually written off³.

Debts are paid from the estate, not by family

When a person dies, their debts are paid off from their estate³. The estate is everything they owned: bank accounts, savings, investments, property and possessions. If the deceased person has assets in their estate, joint or sole, the debts become a liability on the estate⁸. If the debts are in the deceased person's sole name and they have no assets, the debts will not be owed by anybody else².

This is the rule that surprises people most, and it is worth stating plainly: a person is only responsible for someone's debts if they had a joint loan or agreement with them, or provided a loan guarantee⁶. There is no obligation to pay the person's debts from your own money⁹. Creditors are not entitled to pursue family members for payment from their own funds¹⁰.

In Scotland the same principle applies, with its own procedures. Before beneficiaries can inherit anything, any debts owed by the estate normally need to be paid¹¹. If there is not enough money in the estate to pay all debts, the estate may be insolvent, and executors should get legal advice before making payments¹¹.

One practical point: any money left by the person who died must be used to pay towards the cost of their funeral before any rent, utilities and similar bills are paid, except where they left secured loans such as a mortgage, which must be paid first¹². If you are paying for a funeral yourself, see Paying for a Funeral: Costs and Help and Paying for a Funeral From the Deceased's Bank Account.

The order debts are paid when money is short

If there is insufficient money or assets in the estate to pay off any debts, they are paid in priority order until the money or assets run out, and any remaining debts are likely to be written off¹². The estate has to pay off any unpaid debts in a set order before anything is given to people named in the will⁶.

For an insolvent estate, the order is:

1. Secured creditors
2. Reasonable funeral, administration and testamentary expenses
3. Preferred and preferential debts, for example employee wages
4. Unsecured creditors
5. Interest due on unsecured loans
6. Deferred debt, such as an informal loan between family members⁸

If there are insufficient funds to pay all the unsecured lenders in full, they should be paid on a pro-rata basis, meaning each gets a share in proportion to what they are owed⁸. The personal representative needs to pay creditors of the deceased before payments are made to any beneficiaries, if this is possible⁸.

Joint debts, guarantors and secured loans

Joint debts do not go away if one of the people named on the agreement dies. Instead, the other person becomes responsible for repaying the full amount of the debt⁴. If the debts are in joint names, the surviving person will be liable for the debt¹³. If the debts are in joint names or had a guarantor, the surviving person or guarantor will become solely liable for them⁸.

A guarantor must sign an agreement to agree to be a guarantor and will then be responsible for the whole debt if the person dies⁵. If you acted as a guarantor on a loan for your loved one, that is one of the debts that can land with you personally⁹.

Secured loans work differently again, because the lender can look to the asset. A mortgage is the common example: it is paid from the estate before unsecured debts, and the property may need to be sold to clear it. With a lifetime mortgage, the equity release product sold to older homeowners, you usually do not have to make repayments on the loan while you remain in your home, and the loan is paid back after you have moved out or after you have died¹⁴. The loan and any interest will be paid back either when you die or move into long-term care¹⁵. The debt is repaid once you die or move into long-term care and the property is sold, and these products are typically designed so the debt grows over time, eroding the property's value¹⁶. The loan and the rolled-up interest is repaid by your estate when you either die or move into long-term care¹⁷.

If you are dealing with a mortgage as part of an estate, Mortgages: a complete guide and Being an Executor: Duties and Responsibilities cover the wider steps.

Debts that are usually written off or covered

Unsecured debts in your name only are settled from your estate; if you have no assets, debts in your name are written off¹⁸. Credit debts, such as loans or credit cards, should be written off if the debt is only in the deceased person's name and they had no assets when they died¹³. Only a person who has signed the credit agreement can be held liable for credit debts such as credit cards, overdrafts, unsecured loans and catalogues².

Sometimes the estate is not enough to clear all debts. In that case, the rest is usually written off³. Any debts that are solely in the name of the person who has died should be wiped if there is no money left in the estate after the funeral has been paid¹⁹.

Some debts are covered by insurance instead. It is worth checking carefully to see if the deceased person's debts are covered by death cover for a mortgage, payment protection cover for personal loans or credit cards, or death in service from a pension⁶. If a policy pays out, the debt is cleared without touching the estate.

Student loans have their own write-off timetable. Any loan you still owe 30 years after your repayments were due will be written off for new-style loans²⁰, and the same 30-year period applies to Plan 2 loans²¹. Plan 5 loans are written off 40 years after repayments were due²¹. If you are dealing with a student loan as part of an estate, Student Finance: Tuition Fee and Maintenance Loans Explained explains how the plans work.

Dealing with creditors as an executor or next of kin

Executors and administrators are not responsible for the deceased's debts unless they do not do it properly, or they have joint debts with the deceased³. That is the key protection for anyone taking on the role. If you are appointed as an executor, a will is what appoints a trusted person or people to deal with your money and assets after you die²².

The practical duties are: pay funeral expenses and administration expenses before paying debts, and pay creditors before beneficiaries⁸. If the estate is insolvent, get legal advice before making any payments, because paying the wrong person in the wrong order can leave the executor personally liable¹¹.

Creditors may write to the family, and it helps to know what to do. If the person died with no assets, the debt is not recoverable and family members should send a copy of the death certificate to creditors¹⁰. If the deceased person has left assets, they form part of the estate, and it may be possible for the creditor to recover the money owed from the estate¹³.

There are time limits on some claims. Creditors can apply for an Insolvency Administration Order within five years of the death⁶, and the creditor has five years to apply from the date of death². This court process is used where property was owned jointly and the deceased's share would otherwise pass automatically to the surviving owner. Government departments also claim from estates: as a creditor, a claim is normally made from the estate for debts such as recoverable overpayments, Administrative Penalties and Social Fund loans²³.

If the person who died had any cash or assets, a case involving funeral cost recovery in Scotland must be referred to the debt team²⁴. For the wider paperwork after a death, see What to Do When Someone Dies: A Money Checklist and Applying for Probate in England and Wales.

Where to get free help with a loved one's debts

This does not have to be worked out alone, and basic debt advice is free. There are free advice services that can help⁷. Anyone wanting to speak to someone about their debts can get free, confidential and independent advice from a debt adviser²⁵. Free one-to-one advice about debt issues is available and much easier to obtain than in other legal areas²⁶.

Help and support is available to help you cope with your debts however bad things may seem²⁷. For persistent credit card debt, the Financial Conduct Authority points consumers to free debt advice through MoneyHelper²⁸.

If you are the one who owes money, rather than the estate, the same free services apply. If you owe money to HMRC, you can get free, confidential and independent advice from a debt adviser²⁵. Where a debt management plan is in place and the debtor dies, the plan can be revoked on mandatory grounds including the death of the debtor²⁹.

For support with the wider practicalities, see Free Bereavement Support and Helplines and Debt: a complete guide to help, solutions and your rights.