13th May 2015
Don't die in debt – how to dodge the final bill
Almost a million people will never pay off their bills in Britain. These are the consequences of dying in debt and how to avoid them
Avoid the final demand
Almost one million people in the UK will die in debt as pensioners continue to struggle to make ends meet.
The latest figures from Payplan, the fee-free debt help firm, paint a bleak picture of the state of the nation’s future finances as 940,720 individuals will be unable to clear outstanding debts in their lifetime.
This shocking situation follows hot on the heels of the rising number of people forced to unlock the cash tied up in homes to clear debt.
Almost a third of over 55s who took out equity release plans with Key Retirement in the first three months of this year did so to pay off loans, credit cards and mortgages, compared to a quarter using the money raised to pay off borrowing in 2014.
People find it embarrassing to admit they cannot cope financially and try to hide problems from family, hoping they will be able to juggle their budget to keep up with bills and repayments.
Others simply bury their head in the sand and ignore things – hoping debts will disappear.
A third of people in debt prefer to handle it completely alone rather than talking to those around them. Discussing finances with family and getting free advice from a debt expert are vital to help prevent things spiralling out of control.
Debt ruins lives and can mean years of misery and stress
Jane Clack, money adviser at Payplan, says: “There’s no doubt that this new research makes for uncomfortable reading. However, it is a very real situation for many. There is still a lot of stigma surrounding debt and it’s often brushed under the carpet. By the time some people eventually reach out for help, it can be too late and there’s no realistic way that their debt will be cleared in their lifetime.”
There is the big myth that debts die with you. But, unfortunately that is not the case as creditors still need to be paid. When someone dies, debts have to be settled from any assets left behind – things like a property, savings or investments – known as your “estate”.
Creditors will firstly look at whether you own a house.
If you have an estate, the debts will need to be paid out of this before any monies are passed on to your loved ones.
If you are in rented accommodation and do not have savings or any luxury items, you do not have an estate, and therefore your debts are wiped and your family does not inherit your debt.
Debt can be overwhelming, confusing, and scary, but don’t worry – members of your surviving family are not liable to pay the debt out of their own income unless they signed an agreement as a joint borrower or guarantor.
Jane says: “We see many elderly people come to us terrified about their families inheriting their debt.
“However, there are other ways creditors balance the books, and it is always worth getting professional advice in order to plan for any eventuality.”
Debts and Death
Debts are not buried with you
If you have life insurance, that can cover any outstanding mortgage repayments and other debts if you die. After all debts are paid, the person’s share of their estate goes to whoever is named in the will. Without a will, there are guidelines in place to identify who is the next of kin.
If you own a house with someone else as “joint tenants”, the property automatically passes to them.
It is possible for creditors to apply for an Insolvency Administration Order within five years of a person dying, which would mean the surviving owner having to pay the value of the deceased person’s equity into the estate – but this is a very rare situation.
If you own a property as “tenants in common”, the property would have to be formally transferred to the surviving owner, and then the deceased person’s share of the house would be used to pay off the debt.
For council tax, utility bills and tax arrears, these are usually recoverable from the estate too. Creditors, whether for overdrafts, catalogues, or credit cards, have to wait until the estate is sorted out, then ask for payment.
If it is clear there is little or no money in the estate, the surviving family can write to the creditors to suggest that they stop pursuing the debt and write it off.
If you have debt in joint names the surviving person would inherit the responsibility to pay the full outstanding amount, unless there is an insurance policy to cover them.
Debt dos and don'ts
- DO get free help from a debt adviser. The earlier you take control the more options you will have to help get your finances back on track.
- DON’T ignore things. Debt won’t go away, it will only get worse.
- DO speak to your creditors to try to come up with more affordable repayments. Ask them if they will freeze interest or spread the debt over a longer time.
- DON’T pay the person shouting the loudest.
- DO pay essentials such as mortgage/rent, council tax and energy bills.
- DON’T take out more credit.
- DO check you are getting all the financial help you are entitled to.
- DON’T ignore correspondence or telephone calls.
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