What Happens to Your Debts When You Die?

Your estate pays, not your family

When you die, your debts are paid out of your estate: your money, property and belongings. Your executor pays them before any beneficiary gets anything.

Your family do not inherit your debts. If a loan or credit card was in your sole name and the estate cannot cover it, the lender usually has to write off what is left. Nobody else has to pay it unless they signed up to it too.

This guide covers England and Wales.

Debts in your sole name

Credit cards, personal loans, overdrafts, car finance, utility bills and council tax arrears in your name alone are all paid from your estate.

• If there is enough money, they are paid in full and the beneficiaries get what is left.
• If there is not enough, the estate is insolvent. The debts are paid in a set order and whatever cannot be paid is written off.
• Someone who was only an additional cardholder on your credit card is not liable for the balance.
• Student loans from the Student Loans Company are cancelled on death.

Lenders sometimes contact relatives after a death. They should not suggest that family members have to pay a debt they never signed up to. If you are a relative and are not a joint borrower or guarantor, you can say no.

Joint debts

A joint debt is different. If you took out a loan, overdraft or mortgage with someone else, each of you is responsible for all of it. When one borrower dies, the other one owes the whole balance.

So if you and your partner have a joint loan, it does not halve when one of you dies. The survivor has to keep paying. The same goes for anyone who signed as a guarantor.

Mortgages work in the same way and are covered in our guide on what happens to a joint mortgage when a partner dies.

Sole debts and a jointly owned house

A common worry: "The house is in both our names, but the loan was only mine. Can they take the house?"

It depends how you own the house.

• Joint tenants. Your share passes straight to the other owner when you die. It does not go into your estate, so in normal circumstances your unsecured creditors cannot use it. The exception is a seriously insolvent estate: if it is formally administered as insolvent within five years, the court can order the surviving owner to pay back the value of the share (section 421A of the Insolvency Act 1986).
• Tenants in common. Your share is part of your estate. If your debts cannot be paid any other way, your executor may have to raise money against it or sell it.

An unsecured loan is not tied to the house. But a debt you secured on the property, such as a second charge loan, has to be paid from it.

Lifetime mortgages and equity release

A lifetime mortgage is usually repaid when the last borrower dies or moves into long-term care. If your partner is named on it as a joint borrower, they can normally stay in the home for the rest of their life. If they are not named, they may have to leave so the home can be sold. Check the paperwork before relying on it.

Things that usually go outside your estate

Some money does not go through your estate, so your creditors cannot touch it:

• life insurance written in trust, which pays straight to the people you chose;
• most workplace and private pension death benefits, which the scheme pays at its discretion;
• money in joint bank accounts, which passes to the other account holder.

That is why life insurance written in trust is one of the best ways to protect a partner who will be left with a joint mortgage or loan.

What your executor has to do

Your executor finds out what you owed, tells your lenders about the death, and pays the debts before sharing out the estate. If they pay the beneficiaries first and a creditor appears later, they can be personally liable. Executors protect themselves by placing a notice for creditors in The Gazette and waiting two months before distributing.

If your home is left empty while probate is sorted out, council tax is not normally charged on it until six months after the grant.

With PureWill

A will does not change who owes what, but it does decide who deals with your debts and who inherits what is left. A list of your debts and accounts kept with your will saves your executor weeks of detective work. PureWill takes about 20 minutes and costs £79, or £129 for mirror wills. If you have serious debts, an insolvent estate in prospect, or a business, take advice from a solicitor or a free debt charity first.

Related reading: what happens to your house when you die, what does an executor do? and do I need a will if I'm married?