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David Ellis  

Partner, Head of Insolvency

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“… And I leave to my family all my debts".

 

Article date:  24/11/2014

A leading West Midlands lawyer says the credit crunch and resulting recession has led to the emergence of a new phenomenon of 'debt inheritors'.

David Ellis, head of the Insolvency team at Higgs & Sons, says these are the people forced to take over the debts of someone who has died. Under English law, you are not liable for someone else's debts unless you have specifically agreed to it, for instance by entering a debt jointly or being a guarantor. Unfortunately however it seems that more and more people have no idea of the risks involved until after the other person has died.

David explained: "There are many instances where the deceased was jointly liable with someone else, perhaps a joint overdraft or credit card."No action may have been taken to 'call in' the debt while both were still alive, particularly if the interest was being paid each month. But the position may be very different on death. The bank can ask the estate of the deceased to pay off the debt and may also claim the debt from the survivor.

"At least in those circumstances, the survivor is aware of the debt and not too surprised when asked to pay it back. In other circumstances however, the survivor may have no idea of the existence of the debt, the identity of the creditor or the amount owed - yet may still be forced to pay it."This is the person know as a debt inheritor."

In offering an example of a debt inheritor, David said: "A mortgage free couple own their home as 'joint tenants' and don't possess other assets of value in their own names. When the husband dies, the widow automatically becomes the sole owner of the property, irrespective of anything in his will."Problems will arise for the widow if an unsecured creditor of the deceased realises that its debt will not be paid. That creditor might petition for post-death bankruptcy, knowing that the value of the husband's half share of the house can be used to pay creditors."

The full horror of this scenario could see the widow evicted to enable a sale of the home to pay the debt. Or, to enable the widow to continue to live in the house, the family would need to pay the trustee in bankruptcy half the value of the home.
Added David: "Unless the creditors' claims are significant in comparison with the value of the equity, the surviving owner or family members would need to clear those debts and avoid the bankruptcy arising in the first place.

"The correct course of action for the family to take would depend on a number of factors including the value of the unsecured debts, the value of the property and the willingness of the creditors to accept a compromise."

Ultimately, David's advice would be to always seek specialist help before entering negotiations regarding such matters.

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