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What happens to your debt when you die?

Close up shot of coins flowing from a tapWhat happens to your debt when you die? We answer five common questions about borrowing and debt.

Often it is not until we have debts equalling half our annual salaries that we start to think about what future problems we might be storing up for ourselves and even those around us.

Indeed. Many Brits don't think they're in serious debt until they owe more than £14,000, according to research by insurer Bright Grey.  

Here are five common questions that you might ask when you come to think that your debts aren't so cheap and easy to repay after all.

Your children don't have to pay your debts when you die

In Germany, your close family often have to take on your debts when you die, and even pay your rent until the landlord finds a new tenant.

Not so in the UK. When someone dies, no-one else becomes responsible for their individual debts.

The deceased's wealth and property (known as their estate) is used to pay the funeral bill first and then to pay off the debt.

If there is not enough money in the estate, the rest of the debt dies too.

However, there are some special situations where you could end up paying for your loved ones' debt when they die.

This is usually if the debt is held in joint names. For example, if your partner was paying the mortgage but it's in your name too, you become liable for the debt.

Your debt doesn't die if your lender goes bust

If your mortgage, credit card or personal loan provider goes bankrupt, your debt isn't destroyed with them.

Your debt is always worth something to someone.

If the company can't be saved, the loan book may be bought or taken over by another firm or the government.

Many borrowers learned this to their disappointment when Northern Rock collapsed.

New lenders can't change the rules

When you become responsible for repaying your debt to another lender, it can't rewrite your contract.

The terms and conditions must stay the same.

But your lender could increase the interest rates, provided your existing contract allows them to do so.

You don't have to accept an increase in your credit card rate

Banks are allowed to increase your credit card rates. 

Virgin Money recently increased its credit card rates by 50 per cent for some borrowers.

But consumer group Which? says you can opt out of the increase by agreeing to start paying down the debt and not borrowing any more.

It states that you have 60 days to reject the increases but then you're not allowed to spend any more on the card.

However, if you call your bank to reject the increase, some people are finding that the banks are letting them continue to borrow more at the lower rate, after all.

Bankruptcy can be your best solution

Consolidating and payday loans frequently lead borrowers into worse debt problems.

They're shifting money around, rather than dealing with the underlying problem – they have too much debt and too little income.

Debt advice charity Consumer Credit Counselling Service says that bankruptcy is the best solution for some deeply struggling borrowers.

The thought of bankruptcy still makes most debtors feel ashamed.

But bankruptcy can be the cleanest way to get yourself on your own two feet again if your debt problems cannot realistically be repaid and the stress and worry is making you ill, or ineffective at work.




Neil Faulkner

Neil Faulkner

Neil Faulkner waded his way through a mountain of claims as a paralegal before moving on to be an insurance consultant and claims manager. He is a long-term investor, and one-time property owner and landlord. He writes about property, investing, insurance, consumer issues, and helping people get out of debt misery.

View more from Neil



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