Written off debts after death

nixxrite

Apologies if this is the incorrect forum (mods please move as appropriate)

My Mother recently died and we found that she'd ramped up some debt. The first issue is an equity release loan where the company involved can re-posess the house a year after her death meaning I'll need to arrange a mortgage against the remaining equity to pay them off if possible.

However, my main question was around unsecured debt. A friend recently told me that in the instance where the debt isn't secured against the property or has a guarantor it could effectively be written off.

I'm not sure of the legalities as it's my first time dealing with anything like this but it doesn't seem right that this debt can be cancelled?

Appreciate any advice anyone can give regarding the unsecured debt or the equity release issue.

Thanks

sgtbush

When a person dies someone is assigned to handle their estate. Usually that person is mentioned as the 'executor' or 'personal representative' in the will. If none is designated the state will assign someone.
The estate is used to close out all financial transactions of the dearly departed. First, all final bills are paid. If there are any assets left after that, then the remaining assets are divided according to a will, trust or state law. Be sure to check for life insurance policies. People often have policies that they bought decades ago that are still valid.
If the debts are greater than the assets, then the assets are sold and used to pay as many debts as possible. Secured debts (i.e. mortgage or car payments) come first. Unsecured debts (i.e. credit cards) after. Old medical bills would be unsecured. Any debts that are left after the money runs out would not be repaid and the creditor takes the loss.
Sometimes people try to give away their assets before dying in an attempt to avoid leaving the money to pay debts. Creditors have the right to try to reverse those gifts even after death.
You cannot 'inherit' a debt unless you were a party to it prior to the debtor's death. You must accept responsibility for a debt.

dzug1

nixxrite wrote: »

Apologies if this is the incorrect forum (mods please move as appropriate)

My Mother recently died and we found that she'd ramped up some debt. The first issue is an equity release loan where the company involved can re-posess the house a year after her death meaning I'll need to arrange a mortgage against the remaining equity to pay them off if possible.

However, my main question was around unsecured debt. A friend recently told me that in the instance where the debt isn't secured against the property or has a guarantor it could effectively be written off.

I'm not sure of the legalities as it's my first time dealing with anything like this but it doesn't seem right that this debt can be cancelled?

Appreciate any advice anyone can give regarding the unsecured debt or the equity release issue.

Thanks

Your friend is wrong - or at best has given you incomplete or muddled information

You shouldn't arrange a mortgage to pay off the equity release - the property should be sold and the loan repaid out of that. Arranging a mortgage is taking responsibility for a debt that isn't yours.

If there is anything left then the unsecured creditors must be paid - in proportion if need be. They can't get any more than is in the estate - but they are entitled to insist the estate is maximised, which it won't be if the house is not sold. Once there is no more money in the estate - then yes they must write it off. Though some might still try it on.....

Sgtbush seems to be writing from an American perspective - whilst the principles are the same here the detail and order of priority differ.

sgtbush

A common misconception in the UK is that if you die, all your debts will be written off. This is certainly not the case and in fact, when someone dies, almost any debt they have accrued must still be paid back in some way. If the deceased had made a will, the executor of the estate will bundle up all of the person's assets (the estate) and use these to pay off any outstanding debts, beginning with mortgage debt. Although it is sometimes assumed that a surviving spouse or partner would become liable for the debts, this is not necessarily the case. Only where loans had been taken out jointly by the couple, or the spouse was acting as a guarantor for the decease's debt, will a surviving partner inherit responsibility for a debt.

nixxrite

Thanks for the replies.

I should point out I am the executor and the estate has gone through probate already and the property has been left to myself and my brother. There is currently equity in the property after the debts would be settled. (the unsecured is a relatively small amount)

My main concern is the property will not sell within the year meaning the equity release company could repossess the property. Whilst this means the remaining debt would be wiped, it also means the existing equity in the property wouldn't be realised.

That's partly why I was thinking of taking a mortgage on against the equity to clear the debt.

dzug1

Well the question is IS there enough to pay off the unsecured debts without selling the house? If there is, all well and good.

If there isn't, then you are in a difficult situation. The unsecured creditors are still entitled to their money (not necessarily immediately though - they have to wait until it is wound up) if the estate is solvent.

rochja

Do you want the house or do you want the equity in it? If there is no sentimental attachment, if it is not somewhere you want to live why would you mortgage it? If it is somewhere you want to be then why would you not mortgage it? As to equity - the house is only worth what you can get for it. In that case you need best advice about the property condition and the local housing market. As for other creditors - you may need consumer advice regarding the best way to handle them. As you now know from previous postings there is no avoiding them.

fluffnutter

The salient point is that beneficiaries can't keep assets and have the debts written off. Generally speaking the estate is used to repay any debts and any money left over is then inherited.

As others have said, if there are no assets or the amount of debt exceeds the assets, the debts are then 'written off', i.e. an heir can not be expected to pay off debts from his or her own money.

JimmyTheWig

rochja wrote: »

if it is not somewhere you want to live why would you mortgage it?

What if by keeping it on the market for a further 6 months they can achieve a selling price of £20k more than if they priced it for a quick sale?
The worst thing they could do, by the sounds of it, is let the equity release company get their hands on it.
Best thing would be to sell it first (assuming, as it sounds, that they don't want it) but if that's not happening fast then taking out a mortgage to clear the debt sounds like the next best move.

OP, if you're going down this route (i.e. you plan to have the mortgage for only a short time) I suggest you concentrate on mortgage products with low fees (inc. redempion penalties) rather than concentrating on those with low interest rates.

And I'd double-check the small print if I were you. What if, for example, a sale is proceeding when the year is up. Can they still take it then? The amounts of money we're talking here, it's probably best to get a solicitor to have a look at the contract.

DVardysShadow

JimmyTheWig wrote: »

.... And I'd double-check the small print if I were you. What if, for example, a sale is proceeding when the year is up. Can they still take it then? The amounts of money we're talking here, it's probably best to get a solicitor to have a look at the contract.

On a repo, the lender is obliged to take care of the interests of the borrower. If a sale is in progress and they repo and sell for less, they would make themselves liable for the difference. Although it might take a hard fight to make them pay anything beyond the difference between what they are owed and what they sell for.

nixxrite

Again, thanks all.

I'm not sure how the repo will work. There's currently a third of the property value in terms of debt. Neither myself or my brother live in the area and despite the house having some sentimental value as the house we grew up in, its not somewhere either of us want to live or go back to.

@jimmythewig you've hit the nail on the head with the plan in mind. We can realise a third of equity to pay the debt and retain the property.

My main concern is that we'd lose everything in a repo and my mother wouldnt have wanted that to happen.