Debts when you die

[djprescott]

What happens if you have debts when you die but you also have assets that would cover them but no savings or cash. Does assets like property have to be sold to settle any loans etc.

[Oneeyedvic]

Short answer is that the debt does need to be repaid. Most lenders are sensible and will wait or arrange payments from the estate.

As an example, if your debts were �10,000 and you had a house worth �100,000 then a lender would probably want the money in full - if that is not practical, they may ask someone to take over the payments rather than force the sale of the house. If the beneficiaries do not want to take over he debt in their own name, then the house will (probably) have to be sold.

[djprescott]

Thanks for the response.

If there is a surviving spouse, who will inherit the proceeds of the estate, presumably the arrangement to repay would be made with them.

[Dundee]

If the person has no estate then the debt will die with them. Their family will not be expected to pay any outstanding debts.

[Cathyhuns]

Debts are paid before assets are transferred between spouses. Therefore the debt would have to be paid out of the value of the house. If the surviving spouse was still living in the house and wanted to carry on doing so the person to whom the debt is owed might put a charge on the house so they were paid as soon as the house WAS sold.

[djprescott]

Cathy, when you say paid out of the value of the house, do you mean money would need to raised against the property? Thanks. Dave.

[Oneeyedvic]

No, it means that if (and when) the house is sold the debt is repaid. THere would be no onus on the spouse to sell, but they may find it difficult to raise money by way of a secured loan if there were any equity in the property without first clearing the debt.

[Killerschick]

If the debt is in the sole name of the deceased and the spouses (or even just joint owners who are not married) own a property as joint tenants (as is normally the case) the property passes to the survivor on the death of one party. This is automatic and the creditors of the deceased party then have no right to make a claim on the property if they have not been granted a Charge or obtained a Final Charging Order before the date of death.

This principle in law is known as the Right of Survivorship, if you Google this phrase you will find explanations which are more detailed than I have got room to enter here.

If the debt is in joint names, the survivor will still be liable and their share of the property may be subject to claims by creditors.

[themas]

Do remember that if there is a charge on the house and the debt is not actually paid off - perhaps for several years - interest could be added and the amount to be paid in the end could be a lot bigger than expected. Also once the creditor has gone through the Court procedure to put a charge on, he may have a right to apply to Court for an order for sale. The surviving spouse would then be involved in legal costs to fight this.

If at all possible, it is far better for the executors of the estate or the surviving spouse - with help from family or a loan if necessary - to pay off the debt at the outset.

[Killerschick]

Further to my previous answer and as stated by previous respondents, if the property was in the sole name of the deceased, creditors would have a claim on the equity. The estate becomes liable for any debts so if the regular installments due can be paid from the estate's assets or funded by the beneficiaries then the credit agreements will usually run to term as normal. If the regular installments cannot be paid, the creditors may look to take action to force the sale of the property, or at least ensure they are paid when the property is eventually sold.

[themas]

If there is a jointly owned house then, yes, the deceased's share goes to the surviving spouse or other joint owner automatically, and is not part of the deceased's estate. However, this does not necessarily put it beyond the reach of the creditor, who could present a bankruptcy petition against the estate (I think they have 5 years to do so). The deceased's share of the house would then be an asset in the bankruptcy. The house could then be at risk.

[djprescott]

Thanks for the comprehensive answers on this subject.

Dave.