Can Your Debt Be Passed On After Death?

Len Burgess[1]

Len Burgess

Money Savings Advice Can your debt be passed on after death?

Nobody else will become liable for your debts after you die, but they will typically be passed to the executor who’ll need to manage your debts on your behalf until they’ve been repaid or wiped.

What Debts Are Passed to Family Members in Death?

The only debts passed onto family members when you die are those that you are jointly responsible for, such as a joint mortgage. Other debts are repaid from your estate if possible, and written off if the estate doesn't cover them.

Debt can’t be inherited but will be passed on to whoever takes charge of your estate. Usually, the person in charge of contacting your creditors will be your will executor.

When we die, our debts don’t go away. When we borrowed the money, we agreed to pay it back, and that doesn’t change upon death. Of course, once you’re gone, you won’t keep making payments from your bank account. After death, the liability for your debts falls to your estate.

Read on to learn more about how your debts are managed if you die whilst you still owe some money.

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Do Other People Pay Your Debts When You Die?

Nobody becomes financially liable for the money that you owed. That means that nobody else needs to pay from their pocket, set up their own repayments or take on your debts if you don’t die in a strong financial position. Debt can’t be inherited, so you won’t leave your relatives with long-term debt problems that will follow them through their own lives.

That said, debt is passed on in some sense. Creditors still want their money back, so they may continue chasing for repayments even after you’ve gone. Debts are dealt with by being treated as liabilities of your estate.

Understanding Your Estate

Your estate is the total value of your money and possessions when you die. Usually, the estate includes your actual money, houses you’ve owned, cars in your name, your physical possessions and extra payments like life insurance policies. All these things can be used to pay any debts that you’ve owed.

Your debts become liabilities of your estate. They’ll be paid back from your estate, so your creditors won’t end up missing out.

If your estate covers all of your debts, the process is relatively easy. Your debts will be cleared, funeral bills paid, and anything else will be passed on to loved ones that you’ve left behind.

Many people don’t die with anything to cover their debts or die with a very limited estate and debts that far outweigh it. When this happens, your debts are repaid in priority order until your money runs out. Once the money’s dried up, your remaining debts need to be cancelled.

Who Is Debt Passed On to After Death?

If you’ve named an executor in your will, they’ll end up dealing with your debts. It’ll be their responsibility to make repayments directly from your estate. In some cases, the executor(s) may need to be involved in selling your property. Being an executor is a big job and comes with a lot of paperwork.

Executors may be chased for debt by less understanding creditors. This doesn’t mean that the debt becomes theirs to pay, but that they will need to be involved until the creditors are happy or the money in your estate is gone.

In some cases, creditors will learn your situation and agree to wipe off any debt that’s left. In most cases, creditors will wait whilst someone gets your estate in order. Sometimes, people are chased for your debt just as they would be if it were theirs.

Executors may deal with letters and phone calls from the people you owed money to. They will need to explain the situation and do their best to keep creditors happy. Eventually, your debts will be paid back or written off.

The Impact of Your Debt When You Die

As well as being a headache for whoever needs to manage it, your debt can cause some other problems. If you have a house that’s still being lived in, it may need to be sold to pay back any money that you owe. Your spouse or your family may need to move out because the property isn’t theirs to live in.

Even some homes that are jointly owned may become a problem if the way that the property is split means that you each have your share.

If you’d planned to pass things on to your children, giving them money for their first house or to get through their education, they wouldn’t simply inherit the whole of your estate when you die. Debts are a bigger priority, so your creditors get paid before your loved ones.

If there’s anything left over, this is what’s split according to your expressed wishes. It may be that you’d decided on specific items to pass down as family heirlooms, but you should be aware that these may have been sold in the process of paying back your debts.

Preparing for Death in Debt

If you’re in debt, it can be difficult to realise how much trouble this can cause for your loved ones. Fortunately, there are ways to protect them from the impact of your financial dealings.

Life insurance policies don’t need to be expensive, and you may be able to look at your budget and find a way to make the monthly payments. With a life insurance policy, your estate grows a considerable amount when you die.

Life insurance becomes part of your estate, just like your other assets. This money can be used to pay back your debts and leave more for the people you love. Check the terms of your life insurance policy, as some payouts won’t go to your estate but instead directly to your chosen life insurance beneficiaries.

If life insurance is paid to somebody else, they can choose to use it on whatever they want. This may be a way to protect a partner that lives in a house in your name, as they can purchase the house they live in already and won’t get kicked out.

Debt in Old Age – The Statistics

Age All Adults 18-24 25-34 35-44 45-54 55-64 65-74 75+
% Adults with debt 38% 32% 51% 54% 47% 35% 20% 12%

Source: Financial Conduct Authority Financial Survey

As you can see, the older you are, the less likely you are to be in debt – but these are still significant proportions of people in old age who have some form of debt.

If you fall into these categories, consider how your estate will be responsible for your debts and what options you have to minimize the impact on the inheritance you pass on to your loved ones.

Debts After Death

In the strictest sense, your debt can’t be passed on after death. Your son or daughter won’t be lumbered with any debt in their own name. But, the administration tasks do get passed on to the named executor(s) in your will.

When you die, someone will need to take control of managing your debt. Often, this is a time-consuming task for your chosen will executor. You can make things easier by keeping a list of the debts that you’ve got in your name and can help to clear those debts as quickly as possible with a valid life insurance policy.

Once your estate has run out of money, there’s nothing more a creditor can do. The debts you leave behind can only be paid back using money from your personal estate. Of course, this might mean that no inheritance is passed on to those you leave behind.

Your estate is used to repay your debts first, so there might not be any money left over.

You can learn more about death, debts and inheritance by reading our online guides and articles.

How Can Money Savings Advice Help You Reducing Your Debt?

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Money Savings Advice Author Len Burgess

Len Burgess

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.

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