Impact of debts (Liabilities) after a death

Published - 14th December 2019

When someone close to dies it can have a devastating effect on several areas of your life. It can effect you emotionally and take a toll on your wellbeing, plans for the future, and your financial circumstances. 

There is uncertainty around what happens to the deceased's secured and unsecured debts after death.

If a person dies and leaves behind unsecured debts (like hire purchase agreements, personal loans, store cards and credit cards) the impact on what happens to these will depend on whose name the debts were in and whether the person had any assets to cover the liabilities.

There are limited exceptions where probate is not required, mostly where the estate is very small or when ALL bank accounts/property etc., are jointly owned by a surviving spouse or civil partner.

It is unlikely that the partner or spouse are aware of all accounts or debts in the decedent’s sole name.

Personal debt CANNOT normally be inherited provided the debt was incurred in the name of the decedent only, usually referred to as ‘sole name’. There are two exceptions,

  1. if the debt was guaranteed by a third party in which case the third party would become liable.

  2. if the decedent had gifted money not long before the death which could be interpreted as an attempt to avoid payment to creditors from the estate.

Seeing account balances for the previous seven years could alert to this type of activity.

If the debts were in the deceased's sole name only then these debts will either:

  1. be written off if the person didn’t have sufficient assets to cover the liabilities, or

  2. need to be repaid if the person has left an estate with assets (e.g. savings or a house).

If your spouse has died and they had a liability in their sole name only, you won't be liable for that debt but the Estate will be.

If they left a will, any beneficiaries named in it will only receive their inheritance once funeral costs and liabilities have been settled.


Key steps to remember about bereavement and managing finances on behalf of an Estate

  1. When someone dies, it's important that you identify creditors and notify them about the situation. Write a letter to explain whats happened and let them know the Executor will be in touch to make arrangements to settle the liability.

  2. A person's estate is made up of any money they have in bank accounts or savings, any assets they have (like cars, caravans, antiques or jewellery) and any property they own. This could include a house that's in their name or one that's jointly owned with someone else.

  3. Always check to see if the deceased person’s debts are covered by a life assurance or payment protection policy which might repay the liabilities.

Estatesearch Credit & Liabilities report helps identify the liabilities within 48hrs and then has a very comprehensive policy that the protects executors and personal representatives from unknown creditors making a claim on the Estate.