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Have you lost a loved one who was in debt?

Posted 17 August 2016 by Christine Walsh

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Here’s what to do if you’ve recently lost someone who had debt problems.

There are few things more difficult in life than dealing with the loss of a loved one and of course during this time, it can be hard to think about anything else. 

But what happens if your loved one was in debt when they died? Having to deal with financial matters can add stress and confusion to an already very challenging time of your life. As such, it’s important to arm yourself with the knowledge you need to deal with the situation. 

In this blog, we’re going to look into what you need to do if you’re the one sorting the financial matters out after a death. Hopefully by the time you’ve finished reading, you’ll know what you need to take care of and how you can seek further help if you need to. 


The estate is used to pay off the debt

If your loved one had debts when they died, you won’t automatically become responsible for those debts even if you were their closest living relative. 

Money from their estate is usually used to cover any debts that are still outstanding when someone passes away. A person’s estate is any money or property that they left behind. This means you won’t ever be held responsible for debts that you didn’t take out. On the other hand, it does mean that the priority will be to use any money left behind to pay the debts. Even if a house or money was left behind to someone in the will, the debt comes first – so it’s possible you would need to sell the house to cover any debts. 

If there is no money in the estate to pay off these debts then they will be written off – they don’t pass into someone else’s name. 


Dealing with creditors

It can be very distressing to receive mail from lenders addressed to someone who has passed away asking for money. It’s best to contact these lenders and let them know that the person they are trying to contact is no longer with us. 

They should then stop sending letters and give you time to go through the legal process of sorting everything out. If the debt was taken out solely in the deceased’s name, they should stop taking payments out of their account. Once you tell the bank that the account holder has died, they will usually freeze their account too.

You should check whether the person who has passed away had a life insurance policy, as this can sometimes be used to pay off any mortgage (and other debts). 

Their estate might also be entitled to something called a death in service payment. This is a tax-free lump sum paid by some companies if someone dies whilst they are on the payroll. How much they pay out depends on the individual employer, but can be anything up to four to five times their annual salary. This money can then be used to help support any dependents that they might have left behind as well as cover their funeral costs.


Joint debts with the deceased

If you had a joint debt with the person who died, you will now be responsible for the debt yourself. This is because when you take out a joint debt you both become responsible for the whole of the debt, not just half each. 

Even though you still need to repay the debt, it’s still possible for you to contact the lender and explain the fact that the other owner of the debt has passed away.

They may be able to suspend or lower your payments for a while to give you some time to get everything in order and sort out your finances. Another option is that it may be possible for them to freeze interest and charges so that you’re not charged anything extra if you do miss payments during this time. The most important thing you can do is keep your lenders informed of what’s going on. 

Credit card accounts are only ever in one name but sometimes the credit card provider will allow someone to be a second cardholder. Even if you were a second cardholder on an account, the debt will still remain in the deceased’s name – you won’t have to pay any of it. 


Help with repaying debts after someone has died

If you had a lot of joint debts with the person who has passed away you may now find yourself in the difficult position of being responsible for quite a lot of debt and not knowing how you’re going to manage it all by yourself. 

If you’re in this situation, it’s best to reach out for help and advice before you fall behind on payments. It might be possible for you to solve the problem with a debt solution. How you decide to deal with your debts simply depends on the specifics of the situation that you’re in. Speaking to a debt advisor is the best thing you can do. They can offer non-judgemental, expert advice about the best ways to deal with any joint debts you have that you’re now responsible for. 

For general advice on what to do after someone dies, this Government page takes you through each step. If you feel you need emotional support, you can ask your GP for information about bereavement counselling, or contact Cruse Bereavement Care

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.