Debt is a big subject that can be tough to talk about. Because there are a lot of things that can have an impact on your finances, from marriage to divorce or death, understandably, people have a lot of questions about debt.
We're here to help, by answering some of the major questions you might have about debt.
When someone dies, any debt that they leave should be paid out of their 'estate'. An estate is made up of any money, property or possessions that are left behind after your death.
When someone dies, an executor will handle their estate. Usually, the executor is a family member, friend, or solicitor.
Everything that the person who has died owned is known as their estate. That can include:
If there's not enough money in the estate (both in money or in assets) to pay off all the outstanding debts, then the debts are paid in priority order until there's no more money or assets left.
If there's no estate at all left behind when the person dies, then individual debts will be written off. Spouses, relatives and civil partners won't be required to pay off debt after someone dies unless they personally guaranteed the credit.
Things are a bit more complicated in the case of secured debts - for example if a debt was secured against a property or possession. For more about secured debts after someone dies, take a look at this guide from Money Helper.
If someone you love has died and they had debts with Lowell, we understand how difficult things must be. We're here to help - please get in touch and we can explain everything about your loved one's account.
Debt isn't inherited in the UK and you aren't automatically responsible for someone's debts, unless you had a joint loan, joint agreement or guaranteed a loan for them.
When you get married, you remain liable only for your own debts, in your own name. You're not responsible for any debts that are only in your partner's name, even after you get married.
However, if you take out a joint loan, get a mortgage together, or get a joint bank account, both of you will be liable for those debts - but that's true both before and after you're married. In England, you're also jointly liable for council tax debt that's owed on your property - find out more at Step Change.
When you get divorced, the same rule applies as when you got married. You and your partner will both be liable for any joint debts you share together, and you will both have what's called 'joint and several liability'.
That means that if for some reason your ex-partner can't make payment to the debt, you'd need to repay the whole amount of the debt.
If you don't have joint debts with your ex-partner, you can get what's called a 'notice of disassociation'. If there are any references or links to your ex-partner on your credit file, this will remove them. One of the credit reference agencies can help you with removing this link. For more about your credit file and what it contains, read through our guide to your credit file.
To find out more about what happens to debt when you get a divorce or separate from your partner, check out our guide to dealing with joint debt after separation.
If you move to another country, it's important to know that your debt will be affected. If you move overseas, your debts aren't cleared - so creditors might still take some actions to try and recover money in your home country.
While you're abroad, your debt could continue to rise while you are out of the country and can result in additional fines and interest, which could have an impact on your credit score and credit file.
If you're worried about what could happen to your debts with Lowell if you're considering moving to another country, the best thing to do is to contact Lowell and talk to us about the situation.
Bankruptcy can be an option to help clear your debts. It can help some people with getting out of debt, but it isn't the right option for everyone or for every situation. It can be a very serious step for you and your finances, so you should always get independent advice and guidance before you consider bankruptcy.
Once you declare bankruptcy, your possessions and property and other non-essential assets, and excess income will be used to pay off your debts. That could include your house, although you'll usually still be able to live there until it's sold.
A bankruptcy order usually lasts for a year. After the order is over, most debts will be cleared - you won't have to pay back the debts that the bankruptcy order covers.
However, declaring bankruptcy can have very serious disadvantages, and your credit file could be affected for up to 6 years. For more about bankruptcy and other kinds of debt management options, check out our impartial guide to debt solutions.
If you're a Lowell customer and you're considering declaring bankruptcy, get in touch with us. We might be able to help and we can put you in touch with independent, expert advice to see if there are other options for you.
Just as with any debt after someone dies, car finance debt does not disappear after death. What happens to a financed car when someone dies will depend on the type of agreement they had.
As with most kinds of debt after someone dies, if you were a guarantor for the car finance agreement or it was a joint agreement, then you would be liable for paying off the debt.
If the car finance agreement was a personal loan, which is an 'unsecured loan', the car is the property of the estate, and so it might be sold to help pay off the agreement on any other debts.
However, some kinds of car finance such as hire purchase (HP) agreements, personal contract purchase (PCP), or conditional sales agreements, are 'secured loans'. In that case, you don't own the vehicle, so it will still belong to the finance company which might take the vehicle back to sell. Whatever it earns after being sold is usually taken off your debt.
At Lowell, we understand that being in debt can mean a lot of uncertainties. When you're not sure how different circumstances might affect you or your loved ones' lives, it can be stressful. But that's why Lowell is here to help. For more information about how Lowell work with our customers, check out the helpful guides in our debt guidance hub or browse the rest of the Lowell blog.
Published by Libby Davies, 24th June 2022
Sources:
https://www.moneysupermarket.com/life-insurance/what-happens-to-debt-when-someone-dies/
https://www.stepchange.org/debt-info/dealing-with-uk-debts-abroad.aspx
https://www.stepchange.org/debt-info/dealing-with-uk-debts-abroad.aspx
https://www.thecarexpert.co.uk/car-finance-agreement-after-death/
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