When someone dies, any outstanding debts will come out of their estate, which is a combination of all their assets, properties and valuables which are calculated when they die.
The executor of the will, usually a spouse, child or relative is responsible for managing the estate, but none of the beneficiaries will actually be responsible for it, unless they have:
- Co-signed a loan agreement, like a guarantor
- Have a joint loan or joint credit card
- Jointly own the property or asset with the ceased
But importantly, a beneficiary, like a child, will not be held responsible for any outstanding debts left by their parents.
Will I Still Have a Pay A Guarantor Loan If The Borrower or Guarantor Dies?
Yes, when a loan is co-signed or has a personal guarantee, the other party will be liable for any debt. This is a sad time and it is a situation that lenders will want to approach with care and consideration. In many cases, a lender will be willing to offer some kind of arrangement and it is worth discussing if you are having financial difficulty.
Any debts are assumed to be taken out of the estate of the deceased, so when the estate is valued and assets are sold, this can be used to pay off the guarantor loan.
What Happens To Debt When a Person Dies?
When a person dies, all their property, valuables, possessions, jewellery, vehicles, business interests, pensions, stocks and shares will go into something known as the ‘estate.’
Over the next 12 months, a process known as probate will take place that values everything in the estate, pays off any inheritance tax, legal and funeral expenses and anything left over is used to pay off outstanding debts and is then passed onto any children or beneficiaries in the form of inheritance.
A person will become the executor of the will, and be responsible for overseeing and managing all these costs and debts. The executor is usually one or all of the children or it could be a solicitor.
Of vital importance, the executor must wait for probate to be granted to pay off any outstanding debts like mortgage payments, credit card bills or personal loans – because they have to wait for the estate to be valued accurately.
Choosing to pay off the debts immediately could be a bad decision if the estate is not worth as much as expected and ends up eating into the inheritance of others.
It is therefore the responsibility of the executor to notify any outstanding debts like mortgage lenders and personal loan providers that the accountholder has died and any interest and payments should be frozen.
Will Some Debts Be Written Off if Someone Dies?
Yes, it is possible that some debts will just be written off it someone dies. Any debts and expenses will come out of the estate and there is a hierarchy of these:
- Funeral expenses
- Secured debts like mortgages
- Priority debts e.g tax, court fines
- Unsecured debts like credit cards, personal loans, utility bills and overdrafts
However, if there is not enough after the estate has been valued and sold, lower priority creditors may receive less than expected or nothing at all.
When a person dies, in some cases, the debt will be passed over to their spouse immediately, especially if they have joint assets, like the mortgage or credit cards are in both of their names.
But importantly, the debt will never be left to beneficiaries like children of the deceased. Legally the lender cannot recover anything from a beneciary.