Family members are not automatically liable
A credit card, loan or overdraft in the deceased's sole name is a debt of the estate. Relatives do not inherit it personally. Debt collectors sometimes write in a way that implies otherwise; tell them the person has died, and deal with them as the estate rather than as yourself.
When someone else does become responsible
- Joint loans, joint credit agreements and joint overdrafts — the other party owes the full balance
- Debts someone guaranteed or acted as guarantor for
- A mortgage where the survivor is also a borrower
- Debts a beneficiary agrees to take on with an asset, such as a car on finance
How the estate pays
The executor or administrator collects the assets, then pays in a set order: funeral and administration expenses, then secured debts, then preferential debts such as certain tax, then ordinary unsecured debts such as credit cards, and only then the beneficiaries.
Do not pay beneficiaries before the debts. An executor who distributes too early can end up personally liable for what is left owing.
Finding out what is owed
- Go through the last twelve months of statements for regular payments
- Write to each lender for a balance as at the date of death and ask them to freeze interest
- Check for hire purchase, car finance, buy-now-pay-later and catalogue accounts
- Consider placing a statutory notice for creditors before distributing the estate
If there is not enough money
An estate that cannot pay its debts is insolvent. The order of payment becomes strict, unsecured creditors may receive only part of what they are owed, and beneficiaries usually receive nothing. Insolvent estates are one of the situations where paid professional advice genuinely saves money, because the personal risk to the executor is real.