Coping with an Insolvent Estate

If the deceased's debts are larger than the assets, then the estate is insolvent. If the estate is insolvent, not all the creditors will get what's owed to them. Nevertheless, as an executor or administrator it's up to you to make the best of a bad job. If in doubt, consult a solicitor.

In cases of estate insolvency, you don't simply pay out to the creditor that shouts the loudest. You're bound by Act of Parliament to pay the debts in a certain order:

Coping with an Insolvent EstateMortgage. The lender will insist that the property is sold to repay the mortgage. The lender is known as a secured creditor.

Coping with an Insolvent EstateTax authorities. If the deceased owed money to the tax-collector (such as VAT), then this has to be paid next.

Coping with an Insolvent EstateOther creditors. These are also called unsecured creditors. These debts can include credit cards, personal loans, and utility bills. Work out what percentage of all the debt can be met from the proceeds of the estate. Then offer the creditors an equal percentage. If the debts are £40,000 and the money available is just £20,000, offer all creditors 50 per cent of their money back.

Coping with an Insolvent Estate

Play fair: Picking and choosing which creditors to pay from the estate could lead to you being sued.

Coping with an Insolvent Estate

Where an estate is clearly insolvent you may decide not to bother applying for grant of probate or letters of administration. Instead, you can leave it up to the deceased's creditors to apply for letters of administration – it will then be up to them to do the legwork.

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