Dealing with debts when someone dies

 October 2016

Fact sheet no. 21 EW Dealing with debts when someone dies

This fact sheet tells you what happened to a person's debts when they die.

Use this fact sheet to:

  • understand how the ownership of the home is affected by a person's death;
  • find out what to do about any assets that the person has left;
  • find out what kind of bills and debts might need dealing with;
  • and find out who to contact to sort matters out if you need help.

The estate

  • When someone dies, debts are recoverable from any assets or money left behind. This is known as the ‘estate’. No one else has to pay for the debts unless they are already liable under the terms of the original agreement.   A person can be liable, for example, if the debt is in joint names or if someone has signed as a guarantor.
  • Dealing with an estate can be complicated. You may need legal advice.  See the later section Probate for more information about dealing with an estate.
  • This fact sheet provides basic information to help you decide what to do about debts when somebody dies.

The home

Mortgaged house

Important:

charging orders

It is very important to check if the person who died ever had a charging order made against them. This could mean that the house has changed from being owned as joint tenants to tenants in common. See the section Tenants in common below for more information.

When you buy a house in joint names there are two types of ownership status you could have.

Joint tenants

If you owned the property as ‘joint tenants’ then the property passes automatically to the surviving owner. However, it is possible for creditors to apply for an ‘insolvency administration order’ within five years of the person dying. This allows the court to order the surviving owner to pay the value of the deceased person’s equity into the estate, (for example, half the equity).

If any of the creditors threaten to do this, it might be possible to negotiate paying a smaller amount in settlement of the debt rather than lose the house. The court will usually decide that the interests of the creditors are the most important, unless there are exceptional circumstances.

Although this is a rare procedure, it makes it very important that a surviving owner negotiates with any creditors to make arrangements to pay the debts. It may prevent the insolvency administration procedure being used by creditors.

Tenants in common

If you owned the property as ‘tenants in common’ the property has to be formally transferred to the surviving owner. It is not automatically transferred.

In this case, if there are debts, then the deceased person’s share of the house would be used to pay off the debts.

Important:

negotiate

It is very important that the surviving owner negotiates with the creditors to make arrangements to pay the debt back to avoid the house being sold.

After the debts are paid, the person’s share of the house goes to whoever they left it to in a will. If there is no will, then there are set rules for who will be treated as the next of kin and inherit the estate.

How to check

To find out whether you are joint tenants or tenants in common, you need to contact the Land Registry to see if any restrictions on inheritance or ‘succession’ were registered.  You can also check with the original conveyancing solicitor to find out.

If your house is owned as tenants in common you need to find out if there is a will. The joint owner of the property could come to an arrangement to pay off the deceased’s debts to stop the house being sold. They may have to take over the mortgage, or take out a new mortgage to keep the house. This would be particularly important if they are living in the house, or are going to inherit the person’s share of the house.

What if your name is not on the mortgage?

If someone is living in the house who is not a part owner, or married to the person who died, check if there is a will leaving the house to them. If not, then there may be a problem staying in the house permanently. Specialist legal advice from a solicitor is needed.

Rented homes

Extra advice:

check the tenancy

Check the tenancy agreement. You can contact Shelter’s free housing advice line on 0808 800 4444 or contact us for advice.

If there is someone else living in the property, they may be able to take over the tenancy. Joint tenants automatically take over a tenancy. Otherwise a husband or wife, partner, or even a member of the tenant’s family, may be able to ‘succeed’ or inherit the tenancy, if they have been living there when the tenant died.  The time you need to have lived with the tenant is different depending upon the type of tenancy.

Rent arrears

If you take over the tenancy, this does not mean you are liable for any previous rent arrears, unless you were a joint tenant.  Payment for rent arrears should come out of any estate.  You will, of course, have to pay the current rent.

Benefits

The Department for Work and Pensions (DWP) should be informed of the death and any order books returned straight away. If you do not inform the DWP immediately, there may be overpaid benefits that then have to be paid back out of the estate. The council should also be informed if the person was claiming Housing Benefit or Council Tax Reduction.

Extra advice:

Tell Us Once service

Most councils run a Tell Us Once service.  If you contact the service, it will get in touch with other government departments for you.  Check www.gov.uk for more information about the Tell Us Once service.

There may be arrears of benefit owed to the person who died which can still be claimed.

Funeral expenses

There may be help available from the social fund office for funeral expenses, if you take responsibility for the funeral and you are on particular benefits, such as: Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Pension Credit, Housing Benefit or Universal Credit.  You can also claim if you are on Working Tax Credit with a disability element, or Child Tax Credit if your award is higher than the basic family element.  Contact your local Jobcentre Plus office to make a claim or contact your local council’s bereavement service. Check www.gov.uk to find out more about your local council’s bereavement service.

Energy bills

Extra advice:

ongoing energy bills

If anyone is still living in the house, they should arrange for the ongoing energy bills to be put in their name.

If there is jointly-owned or jointly-rented property, the person still living there may be liable for energy arrears. Sometimes the energy company tries to argue that you have ‘benefitted’ from the energy used so should pay for it, even if your name is not on the bill. This is a difficult area. Contact us for advice. Otherwise, the bills are recoverable from the estate.

Water rates and council tax

Water rates would be paid out of any estate, unless someone else lives in the house. A joint occupier will automatically be liable for any arrears, even if their name is not on the bill. They will also be responsible for the ongoing bill.

Council tax liability changes if no one is living in the house. Tell the council as soon as possible and before 6 weeks has passed from the date of the person's death. A representative who looks after the estate of the person who has died may become liable for council tax.  If you think that this may apply to you, see the later section Probate and seek legal advice.

A partner of the person who died will be liable for any council tax arrears, even if their name is not on the bill, if they were living in the house.  If the person was not named on the bill, the council will have to send a new bill in their name before they can recover any outstanding council tax.

They will also be responsible for the ongoing bill, but can claim a 25% discount if they are the only adult in the house.

Hire-purchase agreements

You will normally only have a hire-purchase agreement to buy a car. The goods do not belong to you until the last payment is made. It is very important to check the agreement to see if it is a hire-purchase agreement before returning goods to a creditor. The creditor would need a court order for the return of the goods if over a third of the agreement has been paid. Also, you might be returning goods that actually belonged to the person who died and that should be part of the estate.

Always check to see if there is an insurance policy that pays out when the person dies. This may mean the credit agreement would be paid off, and the car would become part of the estate. Contact us for advice.

The agreement will not automatically end when the person who signed the agreement dies.  It is not straightforward to work out who is responsible for dealing with the hire-purchase agreement.  In some cases it will be the executor of the will.  If someone in the household wants to keep the goods, you may need to talk to the lender about signing a new hire- purchase agreement.  Contact us for advice.

Credit debts

Extra advice:

liability

You are not liable to pay the debt out of your own income unless you signed the agreement as a joint borrower or guarantor.

Credit debts are things like credit cards, overdrafts and catalogues.  Creditors have to wait until the estate is sorted out, then ask for payment.  You may have to negotiate payments to avoid losing your home, if the house forms part of the estate and could be sold to pay the debts.  If it is clear that there is little or no money in the estate, write to the creditors to suggest that they stop pursuing the debt and write it off. See the sample letter Write off after death.

Dealing with the estate

Extra advice:

Deceased Estates Helpline

You can call the HMRC’s Deceased Estate Helpline on 0300 123 1072 (option 4) (Monday to Friday from 9.00am to 5.00pm).  HMRC can help you with questions that you may have about  the estate being liable for income tax or ‘capital gains’. You might make a capital gain if you sell or dispose of a long−term asset (such as a building) for more than it cost you.

You may need to check if there are any of the following.

  • Bank account.  If this was in the person’s sole name, no one will be able to touch the money until the estate is sorted out.  If you had a bank account in joint names, you can still usually use the account. You should make sure all the direct debits and standing orders for household bills are still paid, or separate arrangements are made.
  • Savings.  If you think there may be savings in a lost bank or building society account, carry out a search on-line, using a free service called  www.mylostaccount.org.uk.
  • Pensions.  Check if there was any personal pension, or an occupational pension through work.  There may be a lump sum, or insurance policy that pays out on death or a continued pension for dependants.  The Pension Service tracing service may be able to help.  Contact the service on 0845 600 2537 or through the GOV.UK website www.gov.uk.
  • Life insurance.  Check if there was any life insurance.  The mortgage may be paid off by an insurance policy, or automatically through an endowment policy.  This information should be provided by the mortgage lender.
  • Income Tax. HM Revenue & Customs (HMRC) need to be contacted when someone dies.  There may be a tax rebate due if the person was employed or self-employed.  Any tax arrears owed would be paid out of any estate.  Contact the HMRC on 0300 123 1072.   You can find more information about dealing with tax matters on the HM Revenue & Customs website www.hmrc.gov.uk.

Extra advice:

Probate and Inheritance Tax Helpline

You can call the HMRC’s Probate and Inheritance Tax Helpline on 0300 123 1072 (Monday to Friday from 9.00am to 5.00pm).   HMRC can help you with questions that you may have about probate and inheritance. Check out more information on HM Revenue & Custom's website www.hmrc.gov.uk.

Probate

Someone who deals with everything owned by the person who dies is called the ‘personal representative’. If the estate is complicated someone may have to obtain ‘probate’. This gives official permission to deal with assets and pay debts.

If you have to apply for probate, you should talk to a solicitor who specialises in dealing with estates and wills.  It may be a good idea to see a solicitor if there are assets but there is no will. You will need to check the rules on who will inherit when no will was made. These are called the ‘Intestacy Rules’. You can find out more about this on the GOV.UK website www.gov.uk.

Useful contacts

Age UK publishes a detailed booklet called When someone dies.

Age UK                                            London Friend

Phone: 0800 169 6565                     Phone: 020 7837 3337
www.ageuk.org.uk                         Line open Monday, Tuesday, and Wednesday evenings from 7.30pm to 9.30pm
                                                         www.londonfriend.org.uk

Cruse Bereavement Care             GOV.UK 

PO Box 800                                      The GOV.UK website has a lot of helpful information about what to do after a death.
Richmond                                          www.gov.uk
Surrey
TW9 1RG
Phone: 0844 477 9400
Department for Work and Pensions (DWP)
The Department for Work and Pensions publishes a useful booklet called What to do after a death in England and Wales. Phone us for a copy or find it on GOV.UK.
The Law Society
You can find a solicitor, a law centre or an advice organisation through the Law Society’s website. www.lawsociety.org.uk