Understanding Court Judgements of Deceased Estates
When a person dies, there may be companies which will seek a court judgement to recover a debt from the estate of the deceased. An individual needs to be tasked with dealing with the estate. If the deceased left a valid will, that individual will be the ‘executor’ appointed under the will. If there is no will an ‘administrator’, usually a close relative, is appointed by the court.
Assessing the value of the estate
The first thing an executor or administrator needs to do is to assess the value of the estate to see whether or not it’s solvent.
Start by going through the deceased’s papers and financial statements, and compile a list of all their debts
It is important to identify the type of debts involved:
- Individual or joint debts. Individual debts are in the name of one person, for example a credit card debt. Joint debts are in the name of two people, for example a joint loan or a joint mortgage.
- Secured or unsecured debts. Secured debts are loans taken against an item or asset, for example a house mortgage or a car loan. Unsecured debts involve borrowing money the money upfront from a bank and making regular payments to pay off the loan.
- Undisclosed debts. Sometimes there are debts which are not mentioned in the financial statements. To avoid this situation, it’s wise to advertise in a local newspaper to notify the deceased’s creditors to present their claims.
Paying off debts
Creditors may not know the person has died and may start writing letters or making phone calls demanding payment. To prevent this, the creditors should be contacted and notified of the death. Once they have been informed, they should give the legal process time to run its course before they receive their payment.
Some debts are covered by insurance policies. If that is the case, the insurance company should be contacted to make a claim. If there is no insurance policy the creditors need to be contacted to make arrangements to pay off the debts.
If the estate is solvent, then the assets can be used to pay off all the creditors.
However, if the estate is insolvent, the assets will be used to pay off the debts in the order set out by the Administration of Estates of Deceased Persons Order 1986 (“AEDPO 1986”) until the value of any realised assets is used up, as shown below:
- Secured debts (e.g. mortgages, legal charges)
- Funeral and testamentary expenses (including legal administration fees)
- Specially preferred debts (e.g. money held by the testator in their capacity as an officer for a friendly society)
- Preferred debts (e.g. contributions to occupational pension schemes)
- Ordinary debts (e.g. unsecured loans or finance agreements)
- Deferred debts (e.g. loans from a spouse)
If the deceased has jointly owned property and the estate is declared insolvent, a creditor may apply for a court judgement under s421A Insolvency Act requiring any joint owners to pay the trustee in bankruptcy a sum up to the value of the deceased’s share of the property.
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