Are debts written off after a person dies?
Whether or not debts are written off will depend on what assets the deceased had when they died. If the value of their assets is higher than that of the debts they owe, then their assets will need to be sold or collected in to pay off any liabilities, funeral costs, and administrative/testamentary expenses.
If the Estate is insolvent, so there are more liabilities than the value of the deceased’s assets, then the Executors or Administrators will need to contact the liability holders and try to pay off as much as possible.
There is a specific order for payment of liabilities, which is as follows:-
Firstly, secured creditors. These are creditors who have their loan secured against one of the deceased’s assets, such as a mortgage or secured loan. Usually, the asset will be sold to cover the cost of the secured debt, however, if the value of the asset is less than the value of the debt, additional payment may be required.
Funeral Expenses. Funeral expenses should always be reasonable and proportionate to the value of the deceased’s Estate. For example, if an Estate is worth £10,000, and the funeral costs £9,000, this is not reasonable if there are debts of several thousands of pounds which could have been paid off with that money.
Our Probate Solicitors would point out that a gravestone or permanent memorial is not considered to be part of the funeral expenses. In addition, a family member who pays for the funeral from their own personal funds may find it difficult to recover these funds at a later date if there are other creditors. Before making a payment of funeral expenses for your loved one, you should consider whether you will get the money back in the future.
Testamentary Expenses. These are expenses that are occurred throughout the process of administering an Estate. The Personal Representatives should keep a clear and accurate record of any expenses, as well as keeping receipts for petrol, train journeys or postage. If clear records are not kept by the Personal Representatives, they may find it difficult to claim these costs back in the future. In this category would fall legal fees, and disbursements. For example, if the Executor or Administrator instructs our team of Wills, Trusts, Tax and Probate Solicitors to deal with the administration of their loved one’s Estate, their fees would be covered under this section.
Preferred and Preferential Debts. Whilst these debts will not apply in many Estate, an example of preferential debts are wages due to employees, and this type of debt could also occur where the deceased received direct payments for employing carers, for example.
Unsecured creditors. These are loans or credit cards that the deceased held, or debts to the Government (such as overpaid pension or benefits), which are not secured against any of the deceased’s assets.
Interest due to unsecured loans. For example, unpaid interest due on a credit card would fall into this category.
Lastly, deferred debts. This could be an informal loan between family members or friends.
To ensure that the Personal Representatives comply with the rules of dealing with payment of debts in an Estate, they must pay any debts in the above order, with all debts applying in category one taking precedent over the next set of debts in category 2, etc.
If there is insufficient money to make payment of the debts in one category, the remaining funds should be paid in proportion to the amount of the debt owed.