What happens to debt when someone dies?

The simple answer to this is that the debt has to be paid off by the estate of the deceased.

By "estate", we mean the person's money and possessions. This includes property, vehicles, savings and personal effects.

After a person's death, it's the executor's job to deal with their estate. The executor should have been named in the deceased's will. It can be a close friend or family member or, in some cases, a solicitor or bank. Part of the executor's job is to pay off any outstanding debts – credit card debts, let's say, or loan repayments.

This might sound a little like the executor "inherits" the debt, but that's not the case. Most debts stay in the name of the deceased, but it's the executor's job to pay it out from the estate.

These kinds of debts – where a single named person is on the account – are what are known as "individual debts". The executor never has to foot the bill – unless they were recorded as a guarantor.

This is the most straightforward example of what happens to debt after a person's death. Let's take a look at some other cases where things are slightly more complicated.

What happens if there's not enough money in the estate to pay off debts?

In the event of an "insolvent estate", where there's not enough money in the estate to pay off debts, the individual debts are paid off in order of priority and anything left over is written off. If there's no money at all, the debts are cancelled altogether.

What happens if there's no will?

If there's no will – and therefore no executor – then a family member has to apply for "letters of administration", which allow them to manage the person's estate.

What happens to your partner's debt when they die?

If your husband, wife or civil partner dies leaving behind unpaid debts, it doesn't fall to you to pay them off.

If, however, you had joint debts then you'll be responsible for paying them. This would be the case if you and your partner had outstanding mortgage payments or an overdraft on a joint account.

You're not inheriting this debt as such, because it was already partly yours. But it can create difficulties if a debt you shared suddenly becomes yours alone. If you find yourself in this situation, you might want to get in touch with your lender and look into making smaller repayments over a longer period.

If you were named as a guarantor for your partner, then the loan passes to you in the event of their death.

What happens when parents die leaving debt?

As with partners and spouses, you only assume responsibility for your mother's or father's debts if you had joint debts with them. If you're named as the executor, it's your job to ensure that the debts are paid off – but as we said above, this doesn't mean you have to pay them from your own pocket.

What happens if you inherit a property with outstanding mortgage payments?

When you inherit a property, you're responsible for paying the mortgage, just as you're now responsible for covering the bills. This will be the case unless the person who left you the property asked for the mortgage to be paid from their estate in their will.

If you inherit a property and struggle to pay the mortgage, remember that the property is now yours and you can sell it or rent it out as you please.

What happens if the person left behind unpaid taxes?

Unpaid taxes are a form of individual debt – so, like the individual debts we mentioned above, they're paid for out of the person's estate.

In the case of council tax, the debt will be shared if the person who died was living with other people.

How about student loans?

Unlike other debts, student loans can be cancelled after a person's death – if the loan was issued by the Student Loans Company (SLC). There may be other rules in place with other student loan providers. In the case of the SLC, however, you can get in touch with evidence that the person has died and cancel the debt.

What to do if you're an executor

If you're the executor of a person's will and they died in debt, here are the steps you need to take.

1. Get in touch with lenders to let them know

This is something worth doing as soon as possible to minimise stress. Knowing exactly what has to be paid off puts you in a better position to deal with the will.

2. Check for an insurance policy

An insurance policy can make a big difference in paying off debts, so it's worth establishing whether the person had taken one out.

3. Get a grant of probate or letters of administration

This gives you permission to manage the person's estate – for instance, it permits you to sell some of their belongings to pay off a debt.

4. Pay off the debts out of the estate in order of priority

The order of priority is

• Secured debts such as a mortgage.
• Unsecured debts like income tax and council tax.
• Other unsecured debts such as personal loans, overdrafts and bills.

So if you lose a loved one, the main things to establish are who the executor is and whether you shared any debts with them.

Are you looking for legal support relating to wills, trusts or inheritance? At Milners, our inheritance lawyers pride themselves on being approachable, flexible, and plain-talking. Contact us now for a free legal consultation.