The uncertain economic climate in the last few years has meant that there has been a significant increase in estates that have insufficient assets to pay all the deceased’s debts.

Estates that have insufficient assets to settle all the debts are called insolvent estates.

One common misconception is that the beneficiary of an estate will inherit the deceased’ debts.  This is not the case.  Death does not mean that the debtor’s debts die with him or her, but it does mean that the personal representatives of the estate have a duty to protect the creditors and pay those debts from the deceased’s assets.

The personal representatives will have to ensure that the creditors are paid in accordance with the regulations set out in the Administration of Insolvent Estates of Deceased Persons Order 1986.  For example, the personal representatives will have to settle debts secured against assets of the estate in the first instance, followed by debts preferred by statute and unsecured debts.  If the personal representatives do not settle the debts in accordance with the 1986 Order, they may find themselves personally liable.

It is also advisable for the personal representatives to advertise for creditors.  If creditors do not present themselves within two months of the date of the advert, the personal representatives can finalise the administration of the estate.

Please note that the above is a very simple overview of the law relating to insolvent estates.  If you have any queries regarding the administration of insolvent estates or bankruptcy, please do not hesitate to contact a member of our Wills, Trusts and Probate team on: