Personal Loans After Death: Does the Debt Die With Them?

It is common for grieving relatives to receive letters from banks and finance companies about outstanding personal loans shortly after a death. These letters can be alarming, but in the vast majority of cases, family members have no personal obligation to repay the debt. Understanding how personal loan debt is treated after death will help you respond confidently and protect yourself from incorrect demands.

Personal Loans Are an Estate Liability

In England and Wales, a person's debts do not die with them. When someone dies, their outstanding debts become liabilities of their estate — the pool of assets they left behind. The executor (or administrator, if there is no will) is responsible for paying these debts from the estate before distributing the remainder to beneficiaries.

A personal loan in the deceased's sole name is an unsecured debt of the estate. This means that surviving family members — including spouses, children, and parents — have no personal obligation to repay it. You cannot be pursued for repayment simply because of your relationship to the deceased.

This principle applies even if you knew about the loan, lived in the same household, or benefited from the money in some way. Liability arises from being a co-borrower or guarantor, not from being a relative.

The Exception: Guarantors and Co-Borrowers

There is an important exception to the principle that personal loans are solely an estate liability. If another person co-signed the loan — either as a joint borrower or as a guarantor — they remain personally liable for the outstanding balance, even after the other borrower dies.

A joint borrower is someone whose name appears on the original credit agreement alongside the deceased. Both parties are jointly and severally liable for the full amount, meaning the lender can pursue either person for the entire debt.

A guarantor is someone who agreed to repay the loan if the borrower defaulted. After the borrower's death, the lender can call on the guarantor to settle the outstanding balance.

If you are in either of these positions, you should seek legal advice as soon as possible. It may be possible to check whether the loan had payment protection insurance (PPI) that covers death, or whether the estate has sufficient assets to reduce or eliminate the amount you owe.

How to Notify the Lender

As executor, you should notify the lender as soon as possible after the death. Most major banks and finance companies have dedicated bereavement teams. You can usually do this by:

• Telephoning the lender's bereavement line and following up in writing
• Using the Death Notification Service (deathnotificationservice.co.uk), which allows you to notify multiple lenders simultaneously
• Writing to the lender's registered address with a copy of the death certificate and evidence of your authority as executor or administrator

When notifying the lender, request that:

• Interest is frozen on the account during estate administration (most lenders will agree to this under FCA guidance on fair treatment of bereaved customers)
• No further demands are sent to family members who are not liable
• The lender provides a redemption statement showing the outstanding balance and any accrued charges as at the date of death

Priority of Debts in Estate Administration

When the estate is being administered, debts must be paid in a specific order before any inheritance can be distributed. Personal loans are unsecured debts and sit towards the lower end of the priority order:

• First: Funeral expenses (these take priority over all other debts)
• Second: Testamentary expenses (the costs of administering the estate, such as probate fees and legal costs)
• Third: Secured debts (such as a mortgage or secured loan), where the lender has a charge over a specific asset
• Fourth: Preferential debts (mainly certain HMRC tax debts)
• Fifth: Unsecured debts (including personal loans, credit cards, and utility arrears) — all rank equally
• Last: Legacies and other distributions to beneficiaries

This means that if the estate has sufficient assets, personal loans will be repaid in full before beneficiaries receive their inheritance. If there are multiple unsecured debts and insufficient funds to pay them all, each creditor receives a proportionate share.

Insolvent Estates: When the Estate Cannot Pay All the Debts

If the value of the estate is less than the total debts owed, the estate is said to be insolvent. This situation is more common than many people realise, particularly where the deceased had significant borrowings or had been ill for some time.

When an estate is insolvent:

• Creditors are paid in the priority order described above, until the estate assets are exhausted
• Any debts that cannot be paid from the estate are written off — the creditor takes the loss
• Beneficiaries receive nothing — all assets go to creditors first
• Family members remain entirely protected from personal liability for the shortfall

If you are an executor dealing with an insolvent estate, it is strongly advisable to seek legal advice before distributing any assets, as paying the wrong creditors or in the wrong order can make you personally liable for the shortfall. The Insolvency Act 1986 governs the administration of insolvent estates.

In some cases, it may be appropriate to apply to court to have the estate administered under the Administration of Insolvent Estates of Deceased Persons Order 1986. A solicitor specialising in estate administration can advise on whether this is necessary.