Repaying debts

You have a legal responsibility to arrange the repayment and other liabilities owed by the deceased person. If there isn’t enough money in the estate to pay all the debts and liabilities then you may need to arrange the sale of some assets, including a property, to cover them.

The repayment of debts and liabilities must be completed before the balance of the estate is distributed to the beneficiaries.

Inform creditors of the death

The first step is to inform each creditor of the death and request a repayment amount on the debt or liability. Interest charges should usually stop once notification has been given.

The creditors will understand the situation and will usually give you some time to arrange payment.

Mortgages

With a mortgage, you need to check if there is some type of life insurance policy in place to pay it off. In the absence of one the property may need to be sold.

Credit cards, personal loans, household bills

The outstanding balances on credit cards, personal loans, household bills etc will need to be paid from the estate. For each one, you should ask for a receipt confirming full and final receipt of settlement.

Jointly held property

If the deceased person owned a property as a ‘joint tenant’ then their share passes automatically to the other joint tenant. Most property owned with a spouse will be held as joint tenants. If the deceased person has debts that are not paid, creditors can apply for an ‘Insolvency Administration Order’ within five years of the death. If the order is successful, the property may be divided into two and a sale of the property thereby forced.

If deceased person owned property as a ‘tenant in common’, then their share is passed under the terms of their will or by the rules of intestacy (if there isn’t a will).  Any outstanding debts must then be paid first before the deceased person’s share of the property is distributed.

Advertise for creditors

If you have reason to think that there are creditors of which you don’t have notice you should consider putting an advertisement for creditors in the London Gazette and a local paper. Creditors then have two months to make a claim against the estate.

You will need to consider this course of action if, for example, the deceased person had complicated business interests that are difficult to sort out.

If an insolvent estate

If there is not enough money to pay all the debts and liabilities then it is likely that the estate is insolvent. If the debts are reasonably small, you should be able to complete the administration of the estate.

However, if the situation is more complicated then you should seek professional advice from a solicitor or other adviser.

If there is not sufficient money available, there is a set priority order in which debts must paid. The order is as follows:

1. Secured debts; these will include a mortgage and a secured personal loan;

2. Reasonable funeral costs and costs of administering the estate;

3. Unsecured debts; these will include credit cards, unsecured personal loans, utility bills, unpaid rent, and tax;

4. Interest due on unsecured loans; and

5. Deferred debts such as an informal loan to a family member.

Personal representatives can be legally responsible for debts

You should be aware that personal representatives can be personally liable to creditors who appear demanding payment at a later date even after the estate has been wound up and the assets distributed to the beneficiaries.

For this reason, you need to be certain that all known or likely creditors have been paid. If for some reason you are not confident then you should seek professional advice.

Please Note

Please note that information which we provide through Lasting Post is in outline for information or educational purposes only. The information is not a substitute for the professional judgment of a solicitor, accountant or other professional adviser. We cannot guarantee that information provided by Lasting Post will meet your individual needs, as this will very much depend on your individual circumstances. You should therefore use the information only as a starting point for your enquiries.