Depending upon the circumstances, grief can be all-consuming, and having to face the complexities of dealing with leftover debts can feel like an insurmountable challenge.
This is a general guide to assist you in better understanding how to manage a deceased person’s debts. If you remain unsure or generally feel overwhelmed by the task, it’s important to reach out to free debt advice services for support.
Let’s take a look at how to approach this difficult task.
Create a clear overview of their debts
Before anything else, it’s important to take stock of the person’s debts, to get a clear understanding of what needs to be managed.
Go through all available documents and financial statements, and make a comprehensive list of everything that is owed. It’s also important to check whether any of the debts involve a guarantor, as they would be liable for any debt not covered by the deceased person’s estate.
Also, establish whether each debt is solely or jointly held and whether they are secured or unsecured, as this will change how the debt is handled moving forwards,
A solely held debt is held by one person and is typically referred to as an individual debt. A personal credit card with an outstanding balance, for example, would be classified as an individual debt. Debts that are jointly held are in two or more people’s names, such as a joint credit card or mortgage.
When you borrow money from a lender and use the funds as you wish, you are taking out an unsecured loan. Some personal loans and student loans are examples of this. Sometimes, though, it is necessary to secure a loan against an asset being purchased, such as a car or property. In this case, if the loan is unpaid, the asset will eventually face foreclosure.
Notify all creditors
Once you have a clear list of all outstanding debts, you must contact the creditors in question and notify them of the person’s passing. Advise them that you are sorting through the estate matters and that you will be in touch with them. This should result in them giving you some time and space to handle how to proceed without constant calls or late payment demands.
Request that they send you a statement or letter detailing the current outstanding balance of the debt. Unless the debt is jointly owned, any repayments should be canceled while you sort through the legal process of managing the estate.
Qualify any insurance coverages
There may be insurances in place that can cover the leftover debts, so it’s important to thoroughly explore this potential. Some people take out life insurance policies that can completely cover their outstanding debts, so it’s imperative to check.
If the deceased person did put insurance in place, then thoroughly check over the policy terms and conditions to see what may be claimable. If you are in any way unsure, contact the provider and check directly. Some insurances, such as Payment Protection Insurance (PPI), for example, only cover claims associated with illness or unemployment, but not death.
If you are dealing with a case of wrongful death, it is vital that you consult with a wrongful death lawyer to ensure that you and/or the estate receive all benefits and coverages that you are entitled to.
What if there’s no insurance to cover the debts?
If there is no insurance to cover the debts, you will need to make arrangements directly with the creditors regarding clearing the debts.
If you hold joint debts with the deceased person, you need to request that they remove the other party’s name from the debt and transfer them into your sole name. If you are going to struggle to meet the repayments alone, discuss this with the creditor and try to negotiate a lower repayment amount to avoid defaulting. If they are completely unmanageable, you will need to seek the guidance of a debt advice service.
When it comes to outstanding individual debts, provide any creditors with the contact details for the estate administrator or executor. They will then contact them directly to arrange any payouts, according to the order of debt priority.
Prioritizing debt repayments
Whoever holds probate or grant of administration can use whatever funds are available from the estate to pay off any uninsured debts. Clearing any outstanding debts should come before distributing inheritances to any beneficiaries. First should come any secured debt repayments, then the costs associated with the estate administration and funeral costs, and lastly, any unsecured debts, such as utility bills or credit cards.
Grief can be hard enough to navigate without the added pressures of managing an estate and leftover debts. Be kind to yourself and recognize that you do not have to do it alone. There are many free debt advice services that can assist you, and it may be a good idea to consult with them in any case, particularly if the circumstances are complex. Work through it systematically and try as best as you can to take the emotion out of it, to make the task more doable. Avoiding it will only make the challenges greater in the long run.