When someone passes away, they will often set out who is to inherit their estate and assets through a Will.
But what if that person owed money, and there were outstanding debts when they died?
It’s actually quite a common issue, and often businesses and individuals are left wondering whether they’ll ever get their money back.
In her latest article, Dispute Resolution Associate Anna Curtis looks at what happens to outstanding debts when someone dies and outlines how you can make a claim.
Who is liable for debt when someone dies?
When someone dies, any outstanding debts that are in that person’s sole name will become payable by their estate on their death.
If the debts are in multiple people’s names, then any surviving person who owes the debts will be liable for them.
If someone has acted as guarantor for these debts, then they will be liable for them.
But it’s usually the case that debts are in the deceased’s sole name. It is the executor’s duty to ensure that any debts owed by the deceased are paid.
Can a creditor claim against an estate?
Yes, creditors are able to claim against an estate; unless there’s any agreement in place which states that the debt will be voided on their death.
However, you are only likely to be successful in enforcing the debt if their estate has assets.
How do I lodge a claim against a deceased estate?
In order to enforce a debt against an estate you will firstly need to make contact with the Executor or Personal Representative of the Estate.
You will need to provide evidence in relation to the debt itself, such as:
- Bank transactions that you made to the borrower
- Any communication that confirms money was loaned (such as email and text conversation between you and the borrower)
- Evidence that the money was loaned and not gifted, such as a loan agreement or, again, communication between you and the borrower
You’ll also need to confirm and prove how much is currently outstanding.
How to get in touch with an executor
In the first instance, it is always worth carrying out a probate search online to check whether a Grant of Probate or Grant of Letters of Representation has been granted.
Alternatively, if you already know who the Executors/Administrators are, you can contact them directly.
How long do creditors have to collect a debt from an estate?
Whilst the usual limitation period for collecting a debt is 6 years from the date of default, this period can be significantly shortened if the Executor/Personal Representative serves a Statutory Notice.
This is a notice which advertises the death of the individual and notifies potential creditors that the estate will be distributed. Creditors will have 2 months from the date of the notice to notify the estate of their claim.
It may be possible to recover a debt once the 2 month period is up, or if a statutory notice has not been served.
This will depend on the circumstances and is likely to involve a Creditor needing to claim against the individual beneficiaries rather than the Estate if the funds have already been distributed.
Related article: What can I do if someone defaults on my personal loan?
Can I lodge a claim against an estate after 6 months?
It is possible to make a claim against an estate to enforce a debt after 6 months, but this will depend on whether the Statutory Notice has been served and whether the estate funds have already been distributed.
What happens if an executor does not respond?
If an executor does not respond, the next step is to send a Pre-Action Letter of Claim to the executor.
The Executor would then need to prepare a response to the letter to confirm whether the debt is accepted or denied.
If a dispute remains in relation to the debt which cannot be resolved, then the creditor can commence court proceedings.
How to recover debt from a deceased debtor through court proceedings
Any court proceedings will need to be issued against the executors on behalf of the estate (or the beneficiaries of the estate if the funds have already been distributed).
A Claim Form will need to be prepared setting out the nature of the loan and the amount outstanding, along with any supporting documentation. A court fee will also be payable which will depend on the value of the claim.
The court will issue the claim and send it to the Executor/Personal Representative who will have an opportunity to respond to the claim.
What if the claim is disputed?
If the claim is disputed, the claim will proceed through the court system and be allocated to one of the court tracks, depending on the value of the claim.
How successful are creditor claims against an estate?
The success of these claims will very much depend on the individual circumstances.
If a creditor can provide documentation to support their claim and the Deceased’s estate has sufficient assets to meet the liability, the claim would usually be successful.
Do I need a solicitor to claim against an estate?
Again, this will depend on your circumstances.
Anna Curtis, Associate in our Dispute Resolution team, says: “Claims of under £10,000 will typically proceed through the small claims track of the county court where the successful party cannot generally recover their legal costs.
For this reason, it is not always cost effective to engage a solicitor for claims under £10,000.
Where a creditor has a claim of over £10,000, if they are successful, they would generally be entitled to recover the majority of their costs and for this reason it would usually be worth instructing a solicitor to assist.”
Specialist Dispute Resolution & Creditor Claim Solicitors
If you have any questions following this article, please don't hesitate to get in touch. Our bright Dispute Resolution team have experience in assisting with creditor claims and would be happy to discuss your circumstances with you over the phone.
You can call us on 01202 499255 ,or fill out the form at the top of this page, for a free initial chat.
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