What happens to any debt when you die?
When you die, any debts that you leave behind will be covered by your estate, which is any money and property still in your possession at the point of your death. Your partner will only be responsible for paying any debts that they were also linked to, such as joint loans and agreements. They may also have to cover loans that they had provided guarantees for.
Following your death, your estate will be handled by at least one executor. Executors can be legal professionals like solicitors or family members if you prefer. The executor will need to get confirmation from the court in order to deal with the estate if its value is more than a certain amount. Dealing with the estate involves paying off debts as well as ensuring assets left behind for people reach their intended recipients.
Debts will be prioritised
If you do not leave behind enough money to pay off your debt, debts will be prioritised. Debts need to be paid off before anything can be given to those names in the will. Your partner may need to sell your home if you jointly owned it and the money left in the estate won’t cover the debts. Whether a sale can be avoided will depend on whether there was an automatic destination to the survivor in the title. If there is no destination to the survivor, the person set to inherit the other share may need to negotiate with creditors and source the money that is required.
If the home was owned jointly with a destination to the survivor, the share left behind will be automatically passed to your partner. This does not mean the debts can be ignored, as creditors still have the opportunity to apply for sequestration of your estate up to five years after your death. If sequestration is granted, the trustee who has been appointed may be able to ask for the Court to divide the property so a sale can be forced.
Life insurance may be used to pay off a mortgage. If you had a second mortgage that wasn’t covered by insurance or no insurance at all, there’s a chance the property may need to be sold so the debts can be covered. Surviving joint tenants will need to pay off rent arrears if you lived in a rented property, and they will also be liable for any outstanding council tax, though they may be able to get a discount or exemption if they are not living in the property after your death.
Payment Protection Plans
Where goods were taken out on a hire purchase agreement, the seller will need to get a court order to access the items if more than a third of the agreement has been covered. The surviving partner will be responsible for any credit debt, credit cards and personal loans items that were taken out jointly, though these debts could be covered by payment protection plans.
How we can help
At Miller Reeves, we can assist you if you’re worried about leaving debts for your loved ones after your death, or if your partner has passed away and you’re unsure about what to do regarding debt. Contact us today on firstname.lastname@example.org or 0333 300 1882 to learn more.