When you die, that which you leave behind is called your ‘estate’. Your estate includes everything you own – money, property, belongings, etc. Any debts that have not been settled at the time of your death are taken out of your estate. It is only after these debts have been settled that anything left can be inherited by your beneficiaries.
If you owe more than your estate covers, everything will be sold and you will leave nothing behind, however any debt that this cannot cover will be written off. Beware, if you own any property, this may be required to be sold in order to repay your debts.
If you have any joint debts, they simply pass over to the other party, meaning that they have to take over the responsibility of the full debt.
Often when taking out a loan, you can take out life insurance along with it, this should pay off any outstanding payments on the loan.
Student loans are automatically written off, and have no effect on your estate.
If you have been diagnosed as having a terminal illness, it is always worth contacting your creditors and explain to them your situation. While they have absolutely no obligation to do anything, I personally know of examples where debt has been written off in these situations. If you can’t bring yourself to talk to them over the phone (this is very common), then you can write them a letter – make sure you send it recorded.
There has been a recent case which was widely reported, when Matthew Smith, a man with terminal lung cancer, decided to withdraw his pension early in order to repay his debts so that he was clear when he died. However, the Department of Work and Pensions (DWP) stopped his benefits until he could prove that his pension had indeed gone on repaying his debts.
Mr. Smith said: ‘I drew my pension to clear my debts. Since I did that my Universal Credit has been stopped. This is my fourth month without any Universal Credit coming in. ‘I have paid my rent and I stocked up well with food but now the money is running out. I do not understand what the hold up is.
‘Surely there should be something in place where those that have terminal illness have applications fast tracked.’
He continued: ‘To be honest I am stressed to the max. I am running out of money. It is not fair. Nobody seems to know what they are doing.
‘The money that I spent out was meant to be for the funeral. I hoped whatever was left in the bank the family could use to bury me.’ He added: ‘I feel my body drifting away from me. I am not in a hurry to go but I feel myself slowing. I want to get this claim sorted so I know where I stand.’
Sorting Out Debt After Someone Has Died
This is obviously already an extremely stressful time, and dealing with someone else’s debt isn’t going to make it any easier. If you can, consult a solicitor. They can help and tell you exactly what needs doing, however this can obviously be costly.
If you are doing it on your own, the first thing you need is time. Try and inform all of the creditors as soon as you can. Explain to them that you are going through the legal process of dealing with the deceased’s estate and ask for proof of what is owed – most companies will be sympathetic in this situation, and allow you time to sort things out.
Next, you need to see if the deceased had any insurance that could help pay off some of these debts:
- A life insurance policy might be able to repay a mortgage
- Payment protection insurance could help repay loans and credit cards
- Employers may have a death in service payment that you can use
Debts must be repaid in priority order:
- Secured debts – mortgage
- Priority debts – income and council tax
- Unsecured debts – utility bills, credit cards, loans, etc.
If the stress of the situation is getting to you, don’t suffer alone, talk to someone – anyone.
If you don’t want to talk to a stranger, let your family and friends know how you are feeling, it’s not easy but they may be able to offer support. If you want someone between a complete stranger and your closest friends, your GP will also listen to any problems you are having, just ask for an emergency appointment.
Samaritans – For Everyone – 116 123
Campaign Against Living Miserably (CALM) – For Men – 0800 585858
Papyrus – Under 35 Year Olds – 0800 068 41 41