Dealing with bank debt of a deceased relative

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Dealing with the death of a partner or family member is sometimes more difficult than when you have to sort out their debts. Our guide gives you advice on how to sort out someone’s debt after he or she has died. You can also seek help from a free debt advice service if you don’t feel confident in dealing with their debts, according to www.moneyadviceservice.org.uk.

Take stock of their debts

The first step in dealing with the debts of a partner or a family member who has died is to take stock.

Go through their papers and financial statements, and make a list of everything owed.

You also need to identify if these debts are:

  • Individual or joint debts
  • Secured or unsecured debts

You will also need to check if there is a guarantor for any of these debts – the guarantor is liable for the debt.

There is a different way of dealing and paying off each type of debt. So, it is important for you to know what type of debt the deceased has.

Individual or joint debts

Individual debt is where one person has taken out the debt in his or her name. A credit card, which still has an unpaid balance, is an example of an individual debt. Joint debt is where two or more people have taken out a loan in both their names. A joint mortgage and a joint current account with overdraft are examples of joint debt.

Secured debts or unsecured debts

Secured debt is where a person has taken out a loan against an item or asset. A home mortgage and car loan are examples of secured debts. Unsecured debt is where a person has taken out the loan and agreed to pay it back in instalments. A home improvement loan and student loan are examples of unsecured debts.

Undisclosed debts

Occasionally, after all the debts are paid, you may find a debt that you know nothing about. To avoid this, you can advertise in a local newspaper before you start arranging to pay the debts. This gives the deceased’s creditors time to come forward with their claims. If you don’t do this, you could find yourself having to deal with a creditor claiming on the estate, years later.

How to pay off outstanding debts after a death

Step one: Tell creditors that the person has died.

There is a lot to do when you are dealing with the debts and estate of a deceased. Getting letters or phone calls from creditors demanding payment just adds to the stress of the situation. So, contact the creditors and let them know that the person has died.

Tell them that you are going through the legal process of dealing with the person’s estate. You should also ask them for a letter or statement showing the outstanding balance on the debt. Once they know this, they should back off and give you time to sort out the estate and debts. If it is an individual debt, they should also stop taking out regular payments from the deceased’s bank account(s) until the debt is settled in full.

Step two: Check if there’s insurance.

The next step is to check if the person took out any insurance to pay off the debt, for example, a life insurance to pay off the mortgage in case of death. You should do this no matter what kind of debt it is. If there is insurance, check the terms of the policy for what you can claim. Some policies, such as payment protection insurance (PPI), usually only pay out for periods of unemployment or illness but not death. You can then contact the insurance company to make a claim. Once the claim is processed, you can use the money from the claim to pay off that debt. If there is no insurance, you will need to contact the creditors to make arrangements to pay off the debts, if they have not already made a claim on the estate.

Joint debts

You should check the terms of the loan. Ask them to take out your deceased partner’s name from the bills and transfer all future bills to your sole name. If you can’t afford to pay each instalment in full, see if you can renegotiate the repayments to an amount and schedule that you can manage.

Individual debts

Ask for a statement or letter showing the outstanding balance on the debt. Give them the name and contact details of the executor or administrator for the deceased’s estate. They are responsible for making sure that the debt is paid from the estate. If you are the administrator of the estate, you will need to have probate or a grant of administration. The executor will also pay the debts off in priority order. You need to find out how to get probate in sorting out someone’s estate when there is a will.

Step three: Pay in priority order.

Once you have probate or grant of administration, you can use the money in the estate to pay off the debts that are not covered by the insurance. Paying the debts first is more important than distributing the estate to the heirs. You should pay off the debts in this order of importance:

Secured debts such as the mortgage; reasonable funeral costs and the costs of administering the estate; Unsecured debts such as credit cards, utility bills, unpaid rent, tax and repayment of overpaid benefits. If there are assets, such as a car or a house that if sold, could go towards paying off the debts, it is an option worth considering.

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