It’s a common myth that when your die, your debts die with you. However, that is not the case.
In Scotland there are only a number of ways you can get rid of debt: by personal insolvency, by the debts dying themselves because of operation of law and no longer being enforceable, and by paying them off.
None of us like to think about dying—why would we? If we were to be honest, however, none of us
would like to think of our loved ones being left with our debts either.
In Scotland, when you die, your debts are still owed by your estate. Your estate basically means the
assets and money your leave behind.
This means those responsible for winding it up must ensure your debts are paid before they give anything over to your beneficiaries. If you don’t own anything, that shouldn’t be a problem as essentially your estate is bankrupt and the debts dies that way. However, if you do, then it can be and a horrible surprise for your already bereaved love ones.
Writing a will does not prevent this happening either. You can’t say, for example, give wee Tommy all my money but don’t pay anything to my credit cards or loans. They have to be paid out of your estate after your executor’s costs and funeral expenses are paid.
In the worst case scenario where your life insurance policies are not sufficient, this may mean your home has to be sold, if it has equity, to clear your debts or your family may have to pay them for you.
This is one of the reasons why it is important to check you have sufficient insurance cover to ensure when you die, there is not only enough money to pay off your mortgage, but also your debts. It is also another reason why it’s important to deal with your debts in your own lifetime.
This is why as an insolvency practitioner I always make sure my clients know the importance of having sufficient cover.
After 30 years of practice, I have seen too many cases where those things that people least wish to think about happening, actually happen, usually at the most inopportune moments in their life. A bit of forward planning and dealing with problems today, can make sure you don’t leave problems for your family tomorrow.
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