The first thing is not to panic. In many situations the bereaved person will not be responsible for debts but this is not always true. Usually if the debt was just in the name of the person who died, you will not be considered liable for it. There are exceptions when you may be affected and these are described in ‘Am I liable for any of the debt?’
The following list gives various circumstances which might apply to you, possibly more than one will apply. You may inform organisations to whom money is owed that the person has died but do no more at this stage. You may say you are finding out who will administer the estate.
This can be a complex area so this is a brief guide so you know where to go for more help if needed.
What do I do when the person who died had been declared bankrupt?
You must contact the trustee for the bankruptcy before using any money held by the person who died. They will advise on next steps.
What do I do when the person who died had a debt management arrangement in place?
Contact the company or organisation who has arranged the debt management process for further information and advice.
What do I do when there is not enough money to pay all the debts I have discovered?
The estate (what the person who died has left behind in terms of money and property) is described as insolvent.
There is a strict order in which debts have to be paid. Secured credit such as a mortgage must be paid first and then reasonable funeral expenses. Debts such as to employees are next in priority, for example, if the person received direct payments from the estate to employ their own carer. After that comes money to the government such as unpaid tax and debts to credit card companies and energy suppliers. All first priority debts must be paid before you move to the second level and so on. Available money must be divided amongst the people it is owed to on the same level of priority in the same percentages as the debts are of the total owed. For example, £1000 is owed to two organisations, one of which is owed £800 and the other is due to be repaid £200. However there is only £100 available. The first organisation must be paid £80 and the second £20.
If there are a few debts and the amounts are relatively small, i.e. no more than a few hundred pounds, it may be worth speaking with the creditors (people to whom money is owed) and explaining the situation. They may agree to write off the debt. Do not feel embarrassed about calling them as it is not you who owes money. This is something they will be very used to. If the creditors will not write off the debts or accept reduced amounts please go to the next paragraph before taking any further action.
If there are many debts and the total is more than a few hundred pounds you have three options
- You could deal with everything yourself but if you make any mistakes (this is called maladministration) in how you repay the money you could become liable for the whole debt. Once you start dealing with the debt you can be made to complete the administration of the estate by the creditors i.e. you may not be able to back out if things become too complicated for you (you will be described as having intermeddled in the estate).
- Whether or not you are named as the executor if there is a Will, you do not have to take any action at all with regard to the estate. This means that you must not collect money and you will probably have to consider paying for the funeral yourself to avoid the problems described under 1 above. You can walk away from the estate, including a property that needs to be sold and it will then be up to the creditors to try and recover their money. Many are reluctant to do this so you may find yourself under some pressure to take action. You may want to pay for a one-off consultation with a solicitor to confirm that this is the best course of action.
- Seek professional help. Many solicitors do not take on insolvent estates so you may have to employ a specialist insolvency practitioner. If the estate is large with property that will need to be sold (for which the legal process of probate may still be required) this will be worthwhile.