What to do about debts when someone dies
When someone dies, debts are recoverable from any assets or money left behind. This is known as the "estate". No one else has to pay for the debts unless they are already liable under the terms of the original agreement, e.g. the debt is in joint names or someone has signed as a guarantor. Dealing with an estate can be complicated. You may need legal advice. This factsheet provides basic information to help you decide what to do about debts.
The home
Mortgaged house
When you buy a house in joint names there are two types of ownership status you could have.
Joint Tenants
It used to be the case that if you owned property as "Joint Tenants" then the property would pass automatically to the surviving owner. This meant the property could not be sold to pay off debts. From April 2001 the rules have been changed. It is now possible for creditors to apply for an "Insolvency Administration Order" within 5 years of the person dying, which effectively splits the property down the middle as if it were a "Tenancy in Common".
The surviving owner could be ordered to pay the outstanding debts or risk having the house sold. Half of the sale proceeds, after any mortgages were cleared, could be used to pay creditors unless the court agrees there are exceptional circumstances. This makes it very important that a surviving owner negotiates with any creditors to make arrangements to pay the debts back and avoid this procedure being used.
Tenants in Common
If you owned the property as "Tenants in Common" the property has to be formally transferred to the surviving owner. It is not automatically transferred.
In this case, if there are debts, then the deceased person's share of the house would be used to pay off the debts. After the debts are paid, the person's share of the house goes to whoever they left it to in a Will. If there is no Will, then there are set rules for who will be treated as next of kin and inherit the estate.
How to Check
To find out whether you are Joint Tenants or Tenants in Common, you would need to contact the Land Registry to see if any restrictions on inheritance or "succession" were registered. You can also check with your original conveyancing solicitor to find out. If your house is owned as Tenants in Common, you would need to find out if there is a Will. The joint owner of the property could come to an arrangement to pay off the deceased's debts to stop the house being sold. They may have to take over the mortgage, or take out a new mortgage to keep the house. This would be particularly important if they are living in the house, or are going to inherit the person's share of the house.
What if your name is not on the mortgage?
If someone is living in the house who is not a part owner or married to the person, check if there is a Will leaving them the house. If not, then there may be a problem staying in the house permanently. Specialist legal advice from a solicitor will be needed.
Rented Homes
If there is someone else living in the property, they may be able to take over the tenancy. Joint Tenants automatically take over a tenancy. Otherwise a husband/wife or partner, or even a member of the tenant's family, may be able to "succeed" or inherit the tenancy, if they have been living there when the tenant died. The time you have to have lived with the tenant is different, depending upon the type of tenancy. Check the tenancy agreement.
Rent Arrears
If you take over the tenancy, this does not mean you are liable for any previous rent arrears, unless you were a Joint Tenant. Payment for rent arrears should come out of any estate. You will, of course, have to pay the current rent.
Benefits
The Benefits Agency should be informed of the death and any order books returned straight away. If you do not inform the Benefit Agency immediately, there may be overpaid benefits that then have to be paid back out of the estate. The Council should also be informed, if the person was claiming Housing or Council Tax Benefit. There may be arrears of benefit owed to the person which can still be claimed.
There may be help available from the Social Fund for funeral expenses, if you take responsibility for the funeral and you are on particular benefits, such as: Income Support, income based Job Seekers Allowance, Working Families Tax Credit, Disabled Persons Tax Credit, Housing or Council Tax Benefit. Contact the Benefits Agency for advice.
Fuel Bills
If there is jointly-owned or rented property, the person still living there may be liable for fuel arrears. Sometimes the fuel board tries to argue that you have "benefited" from the fuel used so should pay for it, even if you name is not on the bill. This is a difficult area. Otherwise, the bills are recoverable from any estate.
If anyone is still living in the house they should arrange for the ongoing fuel bills to be put in their name.
Water and Council Tax
Water Rates would be paid out of any estate, unless someone else lives in the house. A joint occupier will automatically be liable for any arrears, even if their name is not on the bill. They will also be responsible for the ongoing bill.
Council Tax liability stops if no one is living in the house. Tell the Council as soon as possible. A partner of the person who died will be liable for any Council Tax arrears, even if their name is not on the bill.
They will also be responsible for the ongoing bill, but will be able to claim a 25% discount if they are the only adult in the house.
Hire Purchase Agreements
Hire Purchase Agreements are only usual for cars and some household goods. The goods do not belong to you until the last payment is made. It is very important to check the Agreement to see if it is Hire Purchase before returning goods to a creditor, as the creditor would need a court order for the return of the goods, if over a third of the Agreement has been paid. Also, you might be returning goods that actually belonged to the person who died and that should be part of the estate.
Credit Debts
Creditors have to wait until the estate is sorted out, then ask for payment. You may have to negotiate payments to avoid losing your home, if the house forms part of the estate and could be sold to pay the debts. If it is clear that there is little or no money in the estate, write to the creditors and suggest they stop pursuing the debt, e.g. write the debt off.
Remember you are not liable to pay the debt out of your own income unless you signed the agreement as a joint borrower or guarantor.
The Estate
You may need to check if there are any of the following:
- Bank Accounts: If this was in the person's sole name, no one will be able touch the money until the estate is sorted out. If you had a bank account in joint names, you can usually still use the account and should make sure all the direct debits and standing orders for household bills are still paid, or separate arrangements are made.
- Pensions: Check if there was any personal pension, or an occupational pension through work. There may be a lump sum, or insurance policy, that pays out on death, or a continued pension for dependants.
- Life Insurance: Check if there was any life insurance. The mortgage may be paid off by an insurance policy, or automatically through an Endowment Policy.
- Income Tax: The Inland Revenue needs to be contacted. There may be a tax rebate due if the person was employed or self employed. Any tax arrears owed would be paid out of any estate.
Probate
Someone who deals with everything owned by the person who dies is called the "Personal Representative". If the estate is complicated, someone may have to obtain "Probate". This gives official permission to deal with assets and pay debts.
If you may have to apply for probate, you should talk to a solicitor who specialises in dealing with estates and Wills. It may be a good idea to see a solicitor if there are assets but there is no Will. You will need to check the rules on who will inherit when no Will was made. These are called the "Intestacy Rules".
This document was provided by National Debtline