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Your credit card wants you, dead or alive!

Friday, 16th April 2010

Over the past few weeks I have had a number of telephone calls and forum enquiries about what happens to your debts when you pop your clogs, peg it, roll over or as most people generally say, pass on. 

What has amazed me is the extent of consumers’ complete lack of knowledge about death and debt, the majority of actually thinking that debts die with you! 

Well let’s get the record straight. Whilst this may be the case if the person who has died has no assets, savings, investments or insurances. If they did have any of these then they are likely to be sold to clear any outstanding debts. 

Some of you may have noticed that the details of a deceased’s estate are often published in the paper. How someone’s worth at their time of debt is established is simple. You add up the value of their assets, money or savings including any payouts from insurances and investments and the value of any property and possessions. 

If a will has been made then someone would often have been named as executor, usually a relative, friend or solicitor, who will take charge of the deceased's person's affairs. 

If no will had been made then the person is deemed to have died intestate. This means that an administrator will need to be appointed to carry out the same duties as the executor but in either scenario, the first undertaking is to get the estate valued and for any outstanding debts to be repaid. 

Unless any of your debts are in joint names you will not be responsible for any wife's, husband's or civil partner's debts on their death. 

However in the case of a debt in the name of more than one person, typically a mortgage held in the husband and wife's names, and any loans secured on the house or unsecured personal loans and overdrafts, each named person is liable for the whole debt. 

If the home was jointly owned and you do not have enough money to clear the deceased's debts and any claims on the estate then there is a possibility that your home would have to be sold. However your options to avoid a sale will depend on whether you owned the home as 'tenants in common' or 'joint tenants'. 

Tenants in common - This is where each of you owned a stated share of the property. The share that belonged to the person who has died will then become part of their estate and will pass on to whoever is mentioned in their will. However any debts that are outstanding will need to be cleared from this share. 

If you wish to avoid the home being sold then you will need to negotiate a settlement with the deceased's creditors. 

Joint tenants - This is where you both own the whole property and upon the death of one partner their share will automatically pass to the surviving partner. 

In effect the asset has passed from the deceased's estate to yours but this does not give you total protection and you may still have to address any debts and claims. 

Within five years of the death creditors can apply for an Insolvency Administration Order. Once granted this can divide the property in two and subsequently lead to a forced sale. In this event you will need to negotiate a settlement if there are debts and claims on the deceased's estate. 

Important check list - it is worth checking if the deceased's person's debts are covered by: 

  • payment protection insurance for personal loans or credit cards
  • mortgage protection/life cover insurance
  • death in service from a pension – if the person dies before pensionable age.

So, you are born free, taxed to death and not necessarily debt free when you pop off either! 

Further information on death and bereavement can be found here at direct.gov.uk  

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