Q&A - What happens if my father cannot pay off all his debts before he dies?

20/10/2014

Q: My father ran a successful business until his late-fifties when he took on a partner who ruined the company and left my father with a substantial debt. Although he currently manages to meet the monthly repayments I am worried what might happen if he dies before the full amount is repaid. Will the debt die with him or could my mother or I inherit it?

A: Generally speaking when someone dies any outstanding debts are paid by their estate. If there is insufficient money in the estate to cover the deceased’s liabilities they get written off. There are however some exceptions to the general rule.

If, for example, your father’s debt was unsecured and in joint names with your mother, then your mother may have signed a ‘joint and several liability agreement’ when the debt was taken out. This being the case your mother would be liable to repay the outstanding balance of the debt if your father died.

If the debt involves a joint mortgage, the outcome would depend on whether your parents signed the agreement as beneficial joint tenants or as tenants in common. As beneficial joint tenants they will both own the whole of their property and if one of them passes away the other will automatically become the sole owner. If they are tenants in common and one of them dies, then the deceased’s share may form part of their estate. However, a beneficial joint tenancy can automatically change into a non-reversible tenants in common agreement if one party has a debt problem that involves the property. 

Historic debts can cause serious complications when someone dies and it is essential that monies are paid out in a certain order after probate has been granted. Such situations need very careful handling and a solicitor should be consulted as early as possible.

Victoria Wilson

Victoria Wilson

Partner

A Partner and Part of our Probate, Wills, Trusts and Tax team in Oswestry