Handling a loved one's debt after death

By Marianne Curphey

When a loved one passes away the last thing you will want to do is sort out the finances they have left behind. However, addressing these issues earlier rather than later can save you a lot of heartache and stress.

Many people will still have active credit cards after they die, and perhaps even other forms of debt. Although it comes at an emotional and stressful time, it is important to sort out this debt as soon as you can, as in some cases you might be liable for a debt that is continuing to accumulate.

The Money Advice Service has a useful checklist that takes you through what you need to do, step by step, after someone has died. Here is our own, credit card-specific list.debt-after-death

1. Cancel your loved one's cards.
One of the first steps to handling a deceased loved one's debt is to contact their credit card companies. You can do this by contacting the customer service department or visiting them in branch. The company or bank should be able to deactivate all the credit cards in the deceased's name, preventing any further transactions or fraud. You should be able to do this as soon as you produce the death certificate.

"Most credit card agreements terminate automatically when someone dies," says Dennis Hussey, an adviser at National Debtline. "The account is no longer active and the charges are halted, which means that any fees or interest is frozen at that point."

This is only true, however, for debts that are solely in the name of the deceased. Authorised users are also not responsible for the debt.

If the debt is joint, however, the survivor is expected to pay. "Broadly speaking, if the debt is a joint one then the surviving spouse is fully liable for the balance," says Hussey. "There is no provision to split the debt 50/50, for example."

"If you can't cope with the repayments on your own then you could talk to your creditors, and explain the situation," says a spokesman for debt charity Stepchange. "It might be that you can get an agreement from them."

It is also essential to understand that cancelling the card does not simply wipe out any debt.

"Creditors to whom money is owed can make a claim on the [deceased's] estate," Hussey says. An estate is the collection of a person's money, property and other assets. However, relatives can't be chased for the money if there is no money remaining in the estate.

"In many instances the debt will be written off," says the Stepchange spokesman. "If a creditor signals an intention to recover the debt from the estate, people should get legal advice and debt advice."

2. Contact an estate lawyer.
When a person dies, someone must obtain the legal right to handle their estate. If the deceased left a will, it should name a will executor. If not, a survivor will need to apply to get a grant of representation, known as probate.

Once you've completed paperwork for a grant of representation or probate, you'll be able to access things such as the person's bank account. You'll need to pay any inheritance tax that's due, then use the estate's assets to pay any debts. This process happens before any assets are distributed to those named in the will. Work closely with the estate lawyers throughout the debt management process, as they will be responsible for paying creditors.

If there is enough money in the estate to pay off credit card bills and other expenses, these will have to be settled first before money is distributed to beneficiaries.

3. Check the deceased's home ownership status.
In the event that there is not enough money in the estate to pay off debts, creditors can make a claim on remaining assets, and that includes the value of the deceased's home, which might have to be sold to settle debts.

If they did not own the home on their own, you will have to find out if the home is owned as "tenants in common" or "joint tenants". This information may be shown in the transfer or lease by which the deceased acquired the property or in a trust deed or in a will, says the Stepchange spokesman.

The difference between tenants in common and joint tenants is that in the former, each person owns different shares of the property, and the property doesn't automatically go to the other owner(s) if one dies. This means shares of the property can be passed on in a will and may be part of the deceased's estate.

Owning as joint tenants means each owner has equal rights to the whole property, and if one dies, the property automatically goes to other owner(s). A share of the property cannot be passed on in a will.

4. What happens if there is no money left?
It is the responsibility of the deceased's estate to pay any debts. However, there is an order of priority. According to HMRC, when someone dies, funeral and administration expenses are paid before any other debts. "The balance of the assets must then be distributed in accordance with the law of bankruptcy," it says. 

If the deceased has no estate, or there isn't enough money in the estate to cover all debts and expenses, then debts are written off. In this case, creditors cannot come after surviving family members for the unpaid debt.

However, be aware that some creditors may petition for an insolvency administration order if the estate is insolvent (that is, not large enough to cover expenses) and the person who died had not been presented with a bankruptcy petition prior to death. If the insolvency administration order is granted, the case is treated like a normal bankruptcy.

Creditors must petition for an insolvency administration order within five years of the death. Normally, creditors only may file an administration order if there has been an unsatisfactory administration by a legal personal representative, according to HMRC.

See related: Does credit card debt die with you?; Financial disassociation: How to get a credit divorce

Updated: 27 February 2017