Losing a loved one is painful. The experience becomes more painful when you are left with new debt. Fortunately, there are some steps you can take to cope with the situation. In case you don’t know what you need to do to deal with the debt of a lost loved one, follow the simple guide below.
Step 1: Take stock of the debt
Your first debt should be determining the amount as well as the type of debt they have. This step is crucial because it makes the situation clearer. You can’t be able to predict the type and amount of debt a lost love one has with accuracy without conducting a thorough investigation.
You should start by going through their financial statements/papers and then make a conclusive list of their debts. While doing this, remember to determine the type of debt i.e. individual or joint, secured or unsecured. It’s also important to check if the debts have a guarantor. All debts with a guarantor should be settled by the guarantor. It’s important to establish the type of debt because there are different ways of dealing as well as paying off different types of debt.
While individual debt (debt registered under one person) can be paid off by a loved one, i.e. a spouse or sibling, joint debt (debt registered under two or more people) should be paid off by the other registered individual/s when one individual dies.
If someone dies after taking secured debt (debt taken against an asset), such debt is already covered by the asset which simply means no one is liable for the debt. Mortgages and car loans are great examples of secured debt. Unsecured debt such as student loans and home improvement loans should be paid for even after someone dies.
You also need to check if they had any undisclosed debts (debts you didn’t know about). The best ways of discovering if your loved one had undisclosed debts is to advertise locally. By doing this, you give creditors time to forward their claims. You also avoid legal problems and inconveniences in the future.
Step 2: Paying off outstanding debts of a lost loved one
Once you take stock, you will have an accurate picture of the type and amount of debt your lost loved one has. To deal with the debt accordingly start by;
a. Contacting creditors: You need to contact all creditors and inform them about the death of your loved one. It is better to initiate communication rather than wait for the creditors to start calling demanding payment. Ask the creditors for formal letters or statements showing outstanding debt. Contacting creditors will buy you time and get rid of unnecessary stress while you go through the legal process of handling a person’s estate.
b. Check if they had insurance: After contacting creditors, you should check if your loved one insured his debt/s. Life insurance can cover mortgage debt and many other types of debt in case of death. There are other insurance covers that can settle outstanding debt. So, check if your loved one had insurance and if the cover can take care of any or all of the debt. You can then proceed by contacting the insurance company, launching a claim and then using the money to pay off the debt.
c. No insurance? If there is no insurance, contact the creditors and discuss ways of settling the debt.
d. Joint debt? If the debt in question belongs to your lost loved one among other parties, check the terms and conditions of the debt. If the terms transfer all the debt to the other parties in case of death, you can initiate a debt transfer process i.e. requesting the other parties to remove the name of your loved one from future bills.
e. Paying the debt: If you have to settle the debt of a lost loved one, pay in order of priority. If the deceased granted you administration of his/her estate through a will, you need to pay off their debts first before distributing the estate to heirs (if there are any). You should pay the debt after exhausting insurance funds, if any. Secured debt like mortgages and car loans should be paid first followed by unsecured debt such as credit card bills, unpaid rent, utility bills, etc. You should also consider selling assets which may be available. If the debt surpasses the value of the estate, you will be required to get professional advice from a lawyer or probate specialist. You can find a good legal professional in the UK here: http://solicitors.lawsociety.org.uk/
Step 3: What if I am struggling to pay off the debt of a lost loved one?
In case you are having difficulties paying off the debt of a lost loved one, you need to talk to a debt adviser to help you find a way forward. Debt advisers can help you find new ways of dealing with the debt. A debt adviser can also help you find benefits and entitlements you didn’t know about.
Losing a loved one results in a lot of misery if you are left with new debt to service. It is, however, possible to manage the debt of a lost love one if you are equipped with the right information. The most important steps are; taking stock of the debt, taking steps to pay the debt as well as seeking professional help if you encounter problems.