What happens to debt when you die in the UK
This guide is for the person administering the estate: the order debts are paid in, how to advertise for creditors, what happens when an estate cannot pay, and how an executor avoids personal liability.
What order are debts paid in when someone dies?
Debts are paid in a set order that puts the funeral and the cost of administering the estate first and the beneficiaries last. It is not first come first served, and paying a creditor out of turn can make the executor personally liable.
The order of priority for paying the debts of an estate:
Administration expenses and reasonable funeral costs: paid before any creditor, because the estate cannot be dealt with at all without them.
Secured debts: a mortgage or other borrowing secured on an asset, usually settled from the sale or transfer of the asset it is secured against.
Preferential debts: the debts the law ranks ahead of ordinary creditors when an estate is insolvent. They are defined in Schedule 6 of the Insolvency Act 1986, applied to insolvent estates by the Administration of Insolvent Estates of Deceased Persons Order 1986 (SI 1986/1999). In practice, they are mainly unpaid contributions to an occupational pension scheme and wages owed to an employee, such as a live-in carer.
Ordinary unsecured debts: credit cards, personal loans, overdrafts and catalogue accounts, which share whatever remains.
Beneficiaries: paid last, and only once every debt, tax and expense above has been settled in full.
Where an estate can pay everything, the order rarely causes a problem. Where it cannot, the order decides who gets paid and who does not, and it has to be followed precisely.
Which debts does the estate pay, and which are written off?
The estate pays every debt in the deceased's sole name until the money runs out, and any unsecured balance it cannot cover is written off rather than passed to the family.
Mortgage: a secured debt tied to the property, so a sole mortgage is repaid from the estate, often by selling the home, and a beneficiary who keeps the property normally takes on a new mortgage. Check for mortgage life insurance or a decreasing term policy before assuming a sale, and see what happens to a joint mortgage when one partner dies where the borrowing was in two names.
Credit cards, loans and overdrafts: what happens to credit card debt when you die is that the estate pays the balance from its assets after funeral and administration costs, and any shortfall is written off. Personal loans, overdrafts and buy now pay later balances are treated the same way.
Car finance: on hire purchase or a personal contract purchase the car is not fully owned until the finance is cleared, so the estate either settles the balance to keep the car or returns it to the finance company.
Utility and council tax arrears: debts of the estate, and ongoing bills on an empty property keep running until the account is closed or the property is sold. See what happens to bills when someone dies.
Student loans: written off on death in England and Wales, so the estate does not repay them and the family is not pursued for the balance.
How do you find every debt before you pay anyone?
Establish the full list of debts before you pay a single creditor or distribute anything, because an executor who pays out early can end up funding the shortfall personally. Write to every lender, card provider and utility for a date of death balance, and keep each reply.
Then check the deceased's post, emails and bank statements for regular payments that point to a debt you did not know about. A standing order to an unfamiliar name is usually a debt, a subscription or an insurance policy. Those date of death balances also feed the estate valuation, set out in how to value an estate for probate.
Debts that executors commonly miss:
Overpaid benefits and tax credits: reclaimed from the estate by the DWP or HMRC, sometimes months after the death.
Overpaid State Pension: any payment covering the period after the date of death is recovered from the estate.
Unpaid income tax: tax owed up to the date of death is a debt of the estate, so a final tax position often needs to be agreed with HMRC. See how to notify HMRC after a death.
Care home fees, guarantees and hire purchase: unpaid care fees, a guarantee the deceased signed for someone else's borrowing, and hire purchase on a vehicle are all commonly overlooked debts of the estate.
What is a section 27 notice and how does it protect an executor?
A section 27 notice is a deceased estates notice placed under section 27 of the Trustee Act 1925, and it protects an executor who distributes the estate against unknown creditors who surface afterwards.
Place the notice in The Gazette and in a local newspaper covering the area where the deceased lived or held property. The notice gives unknown creditors 2 months and 1 day to come forward. Both notices carry a fee, paid from the estate rather than by the executor personally. A deceased estates notice in The Gazette costs £96.55 plus VAT when placed online via the standard webform. Placing it another way costs £131.70 plus VAT (The Gazette, place a notice pricing).
If you distribute the estate after that period has passed and a creditor only appears afterwards, you are protected from having to pay that creditor out of your own money, provided you followed the process. The protection covers creditors nobody knew about, so it is not a substitute for paying the debts you have already identified. A creditor who appears later cannot pursue the executor personally, but the debt itself is not extinguished. Section 27(2) of the Trustee Act 1925 preserves the creditor's right to follow the estate property into the hands of the beneficiaries who received it (legislation.gov.uk, Trustee Act 1925, section 27).
What happens if the estate cannot pay the debts?
An estate that cannot cover its debts is insolvent, and it is handled differently. No beneficiary receives anything, and the debts are paid in the strict statutory order until the money runs out. This order is fixed by the Administration of Insolvent Estates of Deceased Persons Order 1986 (SI 1986/1999). It applies Insolvency Act 1986 insolvency rules, including the ranking of preferential debts, to a deceased person's estate in England and Wales.
The strict order in an insolvent estate:
Secured creditors: dealt with against the asset the debt is secured on, such as a mortgage against the property.
Reasonable funeral, testamentary and administration expenses: paid ahead of the ordinary creditors.
Preferential debts: paid after those expenses and before ordinary unsecured creditors.
Ordinary unsecured debts: credit cards and personal loans, paid last and often only in part.
Creditors lower down the order receive a share of what is left, or nothing, and the shortfall is written off. Nobody inherits the unpaid balance.
If you suspect an estate is insolvent, pay nothing out and distribute nothing until you understand the full picture, and take advice. Paying one creditor ahead of another in the wrong order, or paying a beneficiary before the debts, can leave you personally liable for the difference. An insolvent estate is one of the clearest cases for involving a probate solicitor.
When can an executor safely pay the beneficiaries?
Most executors wait at least 6 months from the grant of probate before paying beneficiaries, because it allows time for debts and any claims against the estate to surface. Waiting costs nothing. Paying early can cost the executor personally.
Run the 6 month wait alongside the section 27 notice period rather than after it, so the two overlap. What the grant is and when you need one is covered in what is probate.
Do not tell a beneficiary what they will receive until the debts are known, because clawing a figure back after a creditor appears is avoidable with proper checks.
How do debts reduce what beneficiaries receive?
Debts are paid before beneficiaries, so they reduce what the people named in the will actually receive. The will is a set of instructions for what is left, not a guarantee of the amounts written in it.
A will might leave a fixed sum to one person and the remainder of the estate to another. Where the debts are large, that remainder can shrink to nothing while the fixed gift is still paid in full. Where the estate cannot even cover the fixed gifts, those gifts are reduced too, in a set order.
Frequently asked questions
Only if the executor gets the process wrong. An executor pays creditors from estate funds, never from personal funds. Personal liability arises where the executor distributes the estate before the debts are settled, or pays creditors in the wrong order, and a creditor is left unpaid as a result.
A section 27 notice gives unknown creditors 2 months and 1 day to come forward, and an executor who distributes the estate after that period is protected from paying them personally. The notice does not extinguish the underlying debt. Most debts must be claimed within 6 years under the Limitation Act 1980, whether or not the debtor has died.
No. A section 27 notice is a protection, not a legal requirement, and plenty of straightforward estates are administered without one. For any estate where the full set of debts is not certain, place one. Without it, an executor who distributes the estate stays exposed to a creditor who appears later.
The administrator pays them, using the same estate funds and the same order of payment as an executor. The administrator is appointed through letters of administration, and carries the same personal liability for paying creditors in the wrong order or distributing the estate too early.
This article is for general information only and does not constitute legal advice. Individual circumstances vary. If you are dealing with an estate, consider taking advice from a solicitor who specialises in probate. For other guidance specific to your circumstances, speak to a funeral director, Citizens Advice, or a regulated financial adviser.