At a time when you are at your most vulnerable, just the thought of having to untangle something as complex and fraught as debt can feel like a herculean task. In addition, if the debt in question is a responsibility that you have inherited from another, and not one of your own making, then it can feel doubly difficult to handle.
Can debt truly be inherited?
In the strictest sense of the word, no, debt cannot be inherited in the UK. Whilst you may breathe a sigh of relief at this news, it is worth noting that if you are the executor of the deceased’s estate then you will be expected to manage all issues pertaining to their debts and the rest of their estate until the matter is settled.
Different types of debt will require different courses of action. If at any time you are in doubt, or finding the situation too much to handle alone, then always remember that you can contact a qualified debt advisor or probate lawyer to assist you.
Secured debt includes large scale debts that are backed up (or ‘secured’) by a particular asset, such as a house or a car. Your mortgage is an example of a secured debt as, if you stop paying it back, the bank has the right to reclaim your house and use the collateral to pay off the outstanding balance on the loan. With a secured debt, the bank owns the asset you have borrowed against until you have paid off every penny on that loan.
Because of this, secured debt should always be repaid first (after funeral expenses and administration costs – as outlined by the HMRC). In the case of a mortgage, for example, if there is no other joint owner then whoever takes over the estate will need to either pay off the remaining mortgage with money from the estate, sell the house, or take over the mortgage repayments.
Conversely, unsecured debt is debt that is not ‘backed up’ or linked to a particular asset. Examples of unsecured debts are personal loans, credit cards, and even student loans. In terms of debt repayment order after a death, unsecured debts must be paid off only after funeral costs and all secured debts.
Some of the most common outstanding unsecured debts are credit cards. To handle all outstanding credit card debt you should first contact your loved one’s credit card companies and their banks to cancel their cards. The company will then freeze the account and so stop any interest that is accruing. You will need a death certificate to confirm each closure. Depending on the value of the estate, credit card debt may sometimes be written off after the death of the account holder. However, each case is different. Always seek professional advice.
Always be aware that if any accounts or debts were taken out in joint names or co-signed, then in almost all cases, in the event of a death the responsibility of repaying the loan passes to the other account holder. This is true of both secured and unsecured debts. This is one reason why you should always think twice before taking out a joint loan.
Finally, always make sure you contact a probate lawyer or other trained professional in order to obtain the best possible legal advice.