Though it is unusual to inherit debt, there are certain situations where you may find yourself responsible for the debt of a deceased partner, relative or friend. Even if you do not have to pay off the debt, you may find that you have to sell jointly owned property in order to clear the debts of the deceased.
Individual Debt
Any debt on a personal credit card, loans that are only in the name of the deceased and have no guarantor, or overdrafts on a bank account held only in the name of the deceased, are paid out of the estate of the deceased.
Not enough in the estate to pay all the debts
All debts must be paid out of the estate in a specific order. Firstly the secured debts must be paid, these must be paid before any funeral costs. After this income tax, council tax and any other priority debts such as mortgage, rent arrears etc. must be paid. Finally, the unsecured debts are taken care of.
The debts are paid in this order until there is no money left in the estate. Any debts that remain are normally written off by the creditors. For the most part, when someone dies, their personal debt dies with them.
The Myths of Inheriting Debt
There are three major myths when it comes to inheriting debt
- When someone dies, all their debt dies with them.
- You can inherit debt from your parents.
- Your parents’ credit score can impact your credit score.
The truth is that none of these are 100% true. There are some situations where your parents’ credit score can affect your own, but that is only in instances where you have joint debts with them. Though most individual debts will disappear when someone dies, there are still debts that do not and have to be paid. You cannot inherit a debt from your parents if you do not have any shared financial undertakings with them. If you are not a guarantor, if you do not jointly own property, have any joint loans, then you will not be responsible for covering your parents’ debt, or anyone else for that matter.
Debts and Your Parents
If you are the executor of your parents’ estate and they die with debts, you will need to collect a list of everything that they owe and who it is owed to. This may require you to place an advert in the local paper as well as in an official public record. This will allow any creditors to come forward so that you can avoid any personal liability for debts that are discovered after the estate has been settled. If you parents have been organised, then they may have provided full documentation of debts due, the totals to be paid and where the money has to go, as an addition to the will.
If you want advice or help about dealing with the debts of an estate, contact our experts today and see how we can help you deal with the estates of those who die with debt.