Bereavement and debt

The financial impact of bereavement

The death of someone close to you can have significant impact on your wellbeing. Not only does it affect you emotionally, bereavement can also have repercussions for your plans for the future, and your finances.

Following a bereavement, you not only have the emotional challenge of coming to terms with the loss of someone close to you, but it may also create feelings of uncertainty around what happens to the person’s debts or assets when they die.

It’s often difficult to make decisions when a person passes away. The following content will help you to understand what support options are available.

Points to remember about bereavement and money

When someone dies, it’s important that you notify their creditors about the situation as soon as possible. Write a letter to explain what’s happened, letting them know that you’ll be in touch again to see what else needs doing. Creditors are normally sympathetic as long they’re kept updated on the situation.

A person’s estate is made up:

  • Money, they have in bank accounts or savings
  • Assets they have such as cars, caravans, antiques or jewellery, and any property they own. This could include a house that’s in their name or one that’s jointly owned with someone else.

Always check to see if the deceased person’s debts are covered by either:

  • A life assurance policy which could be used to repay a mortgage
  • Personal protection insurance which might cover loans or credit cards
  • Or if they’re entitled to a ‘death in service’ payment from a pension or employer which provides a lump sum of money.

Which debts should be dealt with first?

If you are handling a deceased person’s estate, you will need to tackle certain debts first. These include:

  • Funeral costs which may need to be paid up front.
  • Secured debts such as a mortgage or any loans secured against their property.
  • Legal costs. You may need to pay a solicitor who is dealing with the person’s estate and their Will.
  • Unsecured debts such as credit cards, utility bill arrears and council tax.

Unsecured debts and death

When someone dies and leaves behind unsecured debts (such as a personal loan or credit card) what happens to these debts will depend on whose name the debts were in, and whether the person had any assets like investments, savings or a house at the time of their death.

1. If the debts were in their name only

If the debts were only in the name of the person who has died, then these will either be:

  • Written off if the person had no assets, or
  • Required to be repaid if they left an estate such as savings or a share in a house.

If your spouse or civil partner has died and they had a debt that was in their name only, you won’t become responsible for it.

Any beneficiaries named in their will can only receive their inheritance once all funeral costs have been covered and any debts repaid.

2. If the debts were joint with you or someone else

If you or someone else was named on the credit agreement, that person will automatically become responsible for repaying the full amount of the debt.

Note: A credit card will only ever be in one name, but your credit card provider may have also allowed you to have a second card for a partner or someone else. This person will have their own card to use but they’ll be known as a second cardholder. In these situations, the second cardholder won’t be responsible for clearing any of the debt spent on either card.

Handling a deceased person’s estate

The estate is made up of the deceased person’s money (including any insurance pay outs), investments, any property they own (or jointly own) and their personal possessions.

Any money in their estate will cover priorities such as covering the funeral and administration costs. Once these have been settled, if there’s any money remaining it’ll need to be paid towards settling any debts the person had.

In some situations, if there’s money tied up in a property, then creditors could ask for the house to be sold and any monies from the sale used to repay the debt. If you don’t want the house to be sold, then you would need to speak with the creditor to come to an arrangement to repay the debt at a rate you can afford.

In the case of unsecured creditors, most will normally write off a debt (like a personal loan or credit card) if there’s little or no money left when a person dies. They’ll most often only pursue the debt if there’s a large estate.

Remember that a personal representative may become liable for a deceased person’s debts if they don’t administer the estate properly.

If you need additional support, please speak to the team at PayPlan.

Other resources which you may find helpful:

Coping with loss and bereavement