It’s never easy when someone dies. Grief is a powerful, and sometimes debilitating, experience that often leaves next of kin vulnerable. Unfortunately, there is a group that sometimes tries to take advantage of family members in mourning. No, they’re not scammers or confidence men. They’re debt collectors who try to persuade family members to accept responsibility for credit card balances, personal loans, and other debts incurred by the deceased even though family members have no legal obligation to pay.
When someone close to you dies, your grief is sometimes put in the backseat while a host of things arise that require your attention.
Taking care of formalities such as the death certificate will be a high priority, as well as arranging the funeral. Amongst all this you’ll need to check insurance policies for help to pay for funeral costs and change names on household bills.
And before any Will can be executed there are also things you thought you’d never have to deal with – their debts.
If your loved one has accumulated debts relating to personal loans, car finance and credit cards, what happens to these debts on death?
Probate is the process of dealing with the estate of a deceased person, according to the wishes laid out in their Will. Any creditors (companies to whom the deceased owes money to) will usually check probate to claim back debts on death.
If your joint home forms part of the deceased’s estate, it may have to be sold to pay the debts if there is no other way to repay them.
For personal borrowing such as loans and credit cards, write to the creditors and suggest they stop pursuing the debt if it’s clear there won’t be any money to repay.
When someone passes away and leaves behind credit card debt, this would usually be paid off from their estate during the probate process. However, if there was card payment protection insurance that includes death cover, then this may be reclaimed from the insurance, not from the deceased’s estate.
If nothing is left in the deceased’s estate, the credit card company will usually write off the remaining debt. Unlike some other forms of borrowing, a credit card is taken out by an individual and thus the contract is with the deceased – it would not be transferred to the family.
If the deceased’s personal loan is solely in their name, you will not be liable to pay the debt out of your own income as the debt should be written off by the loan company. The loan provider should not charge interest after death, but they may charge interest up until notification of the death or until the death certificate is received and noted. It may also depend on the terms and conditions of the original loan agreement. However, if you signed the loan agreement as a joint borrower, in several names or as a guarantor you will be liable for some, or all of the remaining debt balance and interest will still accrue and be charged.
When you sign a joint loan agreement you are agreeing to take on the responsibility of the debt in full if something happens to the other person. If the deceased has payment protection insurance with death cover, or life insurance linked to the loan, this could pay off part or all of the loan.
The next time you revise your will, you may want to designate someone to discuss any outstanding debts after your death. It could save your spouse some unnecessary heartache.