What happens to credit card debt when someone dies?
If you or someone you know (such as a partner or loved one) uses a credit card a lot, you may be wondering what happens to credit card debt after death.
Do your debts die with you and who is responsible for debt after death in the UK?
When someone you love passes away, it’s already a highly emotional and stressful time, so having the added complication of dealing with debt when someone dies is another burden you could well do without.
Read on to find out what happens to credit card debt or any other type of debt when you pass away and whose responsibility it is to settle it.
What happens to any type of debt when you pass away?
Any type of debt usually has to be settled from a deceased's estate and can include a mortgage, secured or unsecured personal loan, bank account overdraft, hire purchase agreement, credit card, gambling account, income tax, council tax or utility bills, to name but a few.
Different types of debt after death are dealt with in different ways; joint debts are dealt with differently to individual debts and secured loans are dealt with differently to unsecured loans.
If the deceased had a joint debt like a mortgage or joint bank account overdraft, then the responsibility of that debt will usually pass to the survivor. This means the surviving party can be left solely responsible for paying off the joint debt, if there is no insurance policy in place to settle the debt in the event of death.
If you are left with the burden of a joint debt you can’t afford to pay, contact the lender to let them know the joint debtor has died, check the terms and conditions of the debt and see if you can agree on an affordable repayment plan with the lender.
If you solely own any type of debt when you die, then the responsibility to pay off this debt will fall to your estate.
If you left a Will, your estate will typically be managed by an executor or, if you did not write a Will, the administrator of your estate, which is usually your next of kin.
After obtaining a Grant of Probate or Letters of Administration, an executor or administrator of your estate will have to settle priority debts first and if there isn’t enough money in your estate to settle all of the debts, the executor or administrator can usually apply for these to be written off.
With any type of debt, if the deceased left a life insurance policy in place to pay off debts then the executor or administrator will need to contact the insurer to release the funds and settle the debts. If the life insurance lump sum isn’t enough to completely pay off all debts, then the remainder will have to be paid from the deceased’s estate.
If, after the sale of all the deceased’s assets, there is still not enough money in the deceased’s estate to pay off all of their remaining debts, then you should contact the creditor or lender to verify this and ask for the debt to be written off.
If someone dies leaving a secured loan outstanding, then whatever the loan is ‘secured’ against (i.e. property or car), will usually be sold to pay off this type of loan. If the loan can’t be settled in full from the secured asset’s sale proceeds, then the remainder will be settled from the deceased’s estate.
If you're looking to plan ahead, a life insurance policy can help put financial protection in place in the event of your death. To find out more about arranging a life insurance policy to settle your debts or household bills, or other costs like funeral expenses or Inheritance Tax, check out our guide: How does life insurance work in the UK?
What about credit card debt after the death of a spouse in the UK?
If your spouse, civil partner or cohabiting partner dies and they have credit card debts in their sole name, don’t worry, as you will not ‘inherit’ this debt just because you’re in a relationship with or living with them.
Just like any other type of debt, credit card debt in a deceased spouse’s, civil or cohabiting partner’s sole name will be settled from their estate or, if they have one, the proceeds from their life insurance policy.
Again, if there is not enough money in the estate or no insurance to settle a credit card debt then the executor or administrator of the estate should apply to have the debt written off.
Note: There may be some debts that you are unaware of, so to ensure no creditors end up pursuing you (as the executor or administrator of the estate) to settle a debt out of your own pocket, you should place a special type of advert in The Gazette and/or a local newspaper. This type of advertisement is called a ‘Deceased Estates Notice’ and states the name and date of death of the deceased and asks any creditors to get in touch by a certain date if they wish to make a claim from the estate. You should allow at least two months from the date of the Notice to hear from any potential creditors.
Can you inherit debt from your parents?
No, no one inherits a debt from their parents or any other close relative or partner UNLESS a debt is jointly registered in joint names.
All debts in the sole name of a parent or anyone else becomes the responsibility of the deceased’s estate and whoever is dealing with the administration of the estate should arrange for settlement of the same.
Debts after death with no estate
If a person dies with debts but has no Will or valuable assets (i.e. has no estate) and does not leave enough money to pay off their debts, then their debts will usually die with them.
If a person dies without making a Will, the administration of the estate (sorting out all financial matters and debts) will usually fall to the next of kin. If the estate has little to no value, it will not usually be necessary for a next of kin to apply for a Grant of Letters of Administration.
When dealing with the administration of an estate, if a Grant of Letters of Administration has not been obtained, the next of kin will typically need to provide a copy of the deceased’s Death Certificate to various financial institutions for them to close accounts or write off any debts.
If someone dies with no Will, no estate and no known next of kin, the estate and the responsibility for its administration then passes to the Crown (known as bona vacantia). The Treasury Solicitor then becomes responsible for the dealing with the administration of the estate, including the writing off of any debts in the deceased’s name.
What happens to a bank account when someone dies?
If a bank account is joint, the surviving party to the account becomes the sole owner of any debt associated with the account (i.e. an overdraft).
If a bank account is in the sole name of the deceased, then payment of any bank account overdraft debt should be made from the deceased’s estate.
You should contact any banks or building societies as soon as possible after someone dies to notify them about the death. This will avoid interest being charged on any overdraft and will also avoid any fraudulent behaviour.
To find out more about dealing with someone’s finances after death, check out our related guide: Dealing with someone's finances after death.