My mother passed away recently and had an unsecured loan with a high street bank. There were no guarantors and no repayment insurance. Any money left in her bank account was to go towards the funeral and numerous out of pocket expenses.
The bank is asking if there are sufficient assets in the estate to clear this debt. Also, they want to transfer her current balance to part pay the loan. I was rather hoping to use this money to pay for funeral expenses and her various unpaid household bills. How do we stand?
Can I refuse to transfer her current balance into her outstanding loan account? And do I have to pay off the loan if I sell her house?
Dealing with debt after a death can be complicated. Depending on the financial situation of the deceased individual, there may be numerous creditors, each of which believe they have some claim on the estate.
In the first instance, it is important to understand that for the purposes of inheritance and debt settlement there is no separation between your mother's cash savings and the other assets such as the house. These are all combined together to form the estate. Determining whether or not there is enough money to pay off creditors should be done while considering the value of the entire estate, not just the savings.
Any liabilities must be paid in the following order: funeral expenses; secured debts (for example a mortgage on the house); unsecured debts; debts owed to HM Revenue and Customs; debts owed to the DWP; and any unpaid wages or pension contributions. As you can see, funeral expenses take priority over your mother's unsecured loan.
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Try our Do I Need a Will? Checker free, here on this site →So, as it stands, the bank cannot force you to pay off the loan until the funeral expenses have been covered.
However, as has been mentioned, your mother's creditors are within their rights to make a claim on the estate once the funeral costs have been settled. This means that, theoretically, they could force you to sell the home, or take a legal interest in it. In reality, however, it seems that most lenders tend to write off debts in these circumstances – although one would imagine their decision will depend in great part on the value of the debt in question. Furthermore, you may have some difficulty persuading the creditors that the household bills should take precedence over their loan.
It is worth seeking legal advice in this circumstance. This is particularly important as you may need someone to fight your corner, and to help persuade the creditors to stop sending threatening letters if and when they do so. Many high street lenders have a reputation for heavy handed tactics in these cases, and for something of a disregard for the law. As such, you should contact Community Legal Advice, who will be able to give free, confidential legal advice over the phone.
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