What Happens to a Person’s Debts After They Die?

When someone dies with outstanding debts, these usually need to be paid before the estate can be distributed to the beneficiaries.

At Hibberts Solicitors, our wills, trusts, and probate solicitors in Cheshire have been helping executors and families throughout Nantwich, Tarporley, Whitchurch, and Crewe to administer estates in accordance with the law, including identifying and settling outstanding debts, since 1799.

In this guide, we explain what happens to a person’s debts after they die, who is responsible for paying them, and what happens if there isn’t enough money in the estate to pay them.

What happens to a person’s debts after they die?

If a person is in debt when they die, their debts do not usually die with them. Instead, they become a liability on the person’s estate.

Once probate has been issued, all debts must be settled before the estate can be distributed to beneficiaries.

Do beneficiaries inherit debt?

Some families worry that they will inherit the deceased’s debt, but thankfully this is not usually the case.

Usually, the only way beneficiaries can inherit death is if they were jointly liable for it or acted as a guarantor.

Who is responsible for paying a deceased person’s debts?

After a person dies, the executor of their will (or the administrator if there is no will) is responsible for paying their debts.

The executor is not personally liable for the debts, but they can become so if they mismanage the estate and creditors are left unpaid.

It is therefore very important that they are thorough and identify all liabilities before distributing the estate.

How are debts paid off after a person dies?

The executor should begin by identifying and categorising all of the deceased’s debts, as different kinds of debts are dealt with in different ways.

Individual debts

These are debts in the deceased’s name only, like a personal credit card. They are usually paid from the estate. If there isn’t enough value in the estate, they will be written off.

Joint debts

These are debts that the deceased entered into with someone else, like a joint mortgage or joint current account. Typically, joint debts are passed in full to the other surviving person.

Secured debts

These are loans secured against an asset, like a house or car, to minimise risk for the lender. The asset may need to be sold to repay the debt, depending on how it is owned.

Undisclosed debts

These are the riskiest debts; those aren’t immediately obvious. There may be no paperwork for them, or the deceased may have forgotten about them. If the creditors only come forward once the estate has been distributed, the executor could find themselves personally liable for these debts if they haven’t taken appropriate steps to protect themselves.

To avoid this situation, the executor can place a statutory notice for creditors in The Gazette and a local newspaper. Leaving at least two months between the advertisement being printed and distributing the estate gives creditors plenty of time to come forward and protects the executor from personal liability.

How are debts prioritised during probate?

UK law states that estate debts must be prioritised in the following order:

1. Funeral and testamentary expenses.
2. Secured debts.
3. Priority debts (like income tax and council tax).
4. Unsecured debts.
5. Interest on unsecured debts.

What happens if there isn’t enough money in the estate to pay debts?

If there isn’t enough money in the estate to pay off all the deceased’s debts, this is called an insolvent estate.

In this situation, debts are paid in priority order until the money from the estate runs out. Any remaining debts are likely to be written off at this point.

Need help administering an estate?

Administering an estate is legally very complex, particularly when there are debts involved – and getting it wrong can have serious consequences. Seeking expert legal advice before distributing the estate can help protect you from liability and ensure that you fulfil your legal responsibilities.

At Hibberts Solicitors, our team of probate solicitors in Cheshire provide practical, straightforward legal advice on all aspects of probate and estate administration. Contact us today by calling 01270 624 225 or by emailing enquiries@hibberts.com to receive tailored advice from one of our probate specialists.