Administering Insolvent Estate

[InsolventEstate]

This is a name change to start this thread.

I’m trying to help a young person with dealing with the estate of their recently deceased father.
Circumstances are
Father and mother were a couple but not married.
Father died intestate.
Family are a low income family partially dependent on state benefits.
Eldest child is over 18.
Two very much younger children in the household.
Family live in a house owned in the deceased’s sole name.
The property was mortgaged on an interest only mortgage. There is also a second charge on the property. Considering these two charges there is very little equity in the property.
We have found evidence of a large amount of unsecured debts all of which the paper trails suggest have been passed to debt collection agencies over the last few years. There are huge gaps in the paperwork so there is probably more to uncover.

We understand the young person is the first person who should act as the administrator of this estate.
We have started the process of informing all the organisations which we have found evidence of accounts with though as yet we don’t have any final statements.
We initially expected to be able to value the estate and follow the process of hmrc, applying for letters of administration, distributing etc

I’m now expecting the estate will be insolvent and the deficit will be substantial.
Also very conscious there are two minor beneficiaries (though unlikely they are going to benefit).
Seems almost certain that the family will ultimately lose the home. The mother and eldest child are very unlikely to be eligible for a mortgage.

The situation is obviously both personally and legally nightmarish. I initially thought I could help with a straightforward administration but I now feel daunted and like we are at massive risk of getting this wrong and creating a personal liability to creditors for the deceased’s eldest child. However there is literally no money to pay for advice here and I could imagine costs would soon spiral. It’s also clearly not a situation that can just be ignored.

What should be my next steps here? Is there any sort of service that we can access to help?

I suggest looking at www.bereavementadvice.org/topics/probate-and-legal/insolvent-estates/ which has good advice.

It is fairly straightforward really. The partner should set up an appointment with housing and homelessness at the local authority and advise them they are soon to lose their home. They will probably be entitled to accommodation and the LA should assist in securing those when the time comes.

The property needs to be valued by two or three estate agents and put on the market. Once a sale is imminent the partner should be assisted in securing accommodation.

Ensure there will be enough from the sale to pay for estate agents and conveyancing. Try and negotiate discounts on their normal fee due to the sad circumstances.

Once the mortgage and second charge are paid off and estate agent and conveyance fees the balance if any is what is left to pay off the debts. The normal method is once all the info on the debts is collated the offer made to pay the debts is normally pro rata. So if there are 3 debt A£25, B£50 and C£75. And only £5 left to distribute to the creditors, A gets £1 , B£2 and C£3 in full and final settlement of the debt. There are pro rata calculators online. You write to the creditors stating you have letters of administration and advise there are many debts and the estate is insolvent. That they are being settled on a pro rata basis and this is what is available to you on the basis of full and final settlement.

The debts that belonged to the deceased, are his alone, nobody else is responsible for them and once distribution is made that is it.

Any joint debts are tricky, but in these circumstances many lenders will write them off. It would be helpful to speak to a debt counselor at CAB, preferably a caseworker who could write letters requesting a write off on her behalf.

In order to cover the executors/administrators an advert should be placed in the London Gazette basically asking for any creditors of the deceased to make contact with you with proof of their debt. It's VERY important that is done. That about covers it.

There are some great online resources, do make use of them. Anything .Gov is good to trust.

Yes good resource from prh.

Have you/they applied for probate? If not, and you are 100% certain it is insolvent, I would step away and advise them to do the same!
Inform any creditors the estate looks to be insolvent and there is no executor appointed.
If it’s too late and you’ve applied for probate, I’d contact citizens advice.

We haven’t applied for letters of administration as we are still in the process of trying to value the estate. We started the process believing the house would be a sizeable asset subject only to a small mortgage as it had been owned for over twenty years so the discovery the estate is probably insolvent has been a shocking one.

There are no joint debts that we know of as all finances were kept separate. Having uncovered what we have and knowing this was all kept secret there is I suppose a risk we find a debt in joint names which has been incurred fraudulently.

For funeral costs - will they come ahead of unsecured creditors. The funeral has already taken place. It was modest but not particularly cheap. My understanding is that the bill for this can be settled out of the estate before the unsecured creditors are paid. Is this correct.

If we step away I don’t actually understand what will happen. How will his affairs be closed. Will this mean the funeral costs have to be met by the family? There are two small assets (pension funds) - would they just remain in limbo. What will be the implications for the family in relation to the housing situation...will we just have to wait for the mortgage lender to take steps to repossess the property?

You mentioned that the house is in the sole name of the deceased. Is that also true of the mortgage?

Debts cannot be inherited. The assets belonging to the deceased must be used to pay off as much debt as possible (relatives can usually keep a few bits and bobs of sentimental value rather than being forced to sell absolutely everything just to drive the debt down by a few pence). There can be no other beneficiaries of the estate while there are still unsatisfied creditors but equally, if the money isn't there then there is no obligation moral or legal to require any surviving relatives to do anything about any shortfall. The house will need to be sold but that should not be done in such a way as to make any vulnerable person homeless - any family members who live there should be given enough time to make other plans.

Do check thoroughly for a life insurance policy - many lenders will not issue a mortgage without there being a basic life-cover in place which will pay off the amount of debt in the event of the mortgagee's death before the end of the term. I am sure that there are ways to get around that which the deceased may well have gone with, but you need to be sure.

The mortgage is in the sole name.

I’ve already asked the bank the mortgage is with the theoretical question as to whether they would have compelled the purchase of life insurance as part of the mortgage and they said they recommend but don’t compel customers to take it. Once we have access to his current account we’ll work through the direct debits and see if these reveal anything. Initially my assumption was that we would find a life insurance policy and an endowment policy but due to what we have uncovered I no longer expect this to be the case. In fact I’m more expecting to find direct debits set up to other personal loan and credit card companies.

Totally understand no one else is liable for these debts once the estate is at zero. It’s still an incredibly hard adjustment for the family to understand they will be left with nothing, not even the family home.

For funeral costs - will they come ahead of unsecured creditors

Yes. If you follow the link I posted that gives the order in which debts must be paid. Reasonable funeral costs are a long way ahead of unsecured creditors in the queue.

If we step away I don’t actually understand what will happen. How will his affairs be closed

The creditors can apply to the court to have the deceased declared bankrupt and for a Trustee in Bankruptcy to be appointed to administer the estate.

As there is a family home involved, I would strongly recommend getting proper legal advice or, at a minimum, advice from a debt advisory service before deciding how to proceed. In the meantime, the young person should not do anything that would be classed as administering the estate (closing bank accounts, paying debts, etc.).

Note that pensions do not usually form part of the estate - a person nominated by the deceased (or, if nobody is nominated, the next of kin/dependant, who applies to the pension provider) receives any payout. This could give the family something (even if small)

We have so far notified the financial institutions we have found evidence of a relationship with. We’ve also used the tell them once service so other agencies are aware. We have a local estate agent valuing the house. We can stop at this point if this is sensible. I really don’t want to misstep but at the same time without gathering this information it would be hard to have a productive discussion with an adviser.

I know this is a naive question but what debt advice service could help? I have no experience of needing anything like this.

It’s really a difficult situation. We live in an area of enhanced local restrictions so can’t technically meet and I’m dealing with a distressed teen with a mother who doesn’t really accept that this won’t be resolved by her just continuing to pay interest on the mortgage.

Just wanted to say thanks to people who have taken the time to respond, the advice is much appreciated. I’m using a probate guide book plus referring to material online but obviously the vast majority of it is not specific to an insolvent estate.

I'd speak to the local citizens advice bureau, they usually do specialist debt advice.

Invest in a meeting with a probate solicitor. They will be able to give you a steer at least.

Some debtors may accept a proportion of the debt, some may write it off altogether although probably not the mortgage company/ies.

In the normal course of events you sound like you know what you're doing but in this case it sounds like you might be out of your depth.

Good luck

Bu the way solicitors can do meetings over the phone at the moment.

You’ve mentioned the mother is living there with two younger children, she’d be entitled to housing as the repossession will make her homeless. It could be worth speaking to the housing department at the local council too.

I would definitely advise against getting any letters of administration until you’ve got more information and hopefully had a consultation with a solicitor/CAB.

Was there money in the deceased’s bank accounts? That can be used to directly pay for a funeral, the bank will generally pay the funeral director or provide a cheque upon receipt of an invoice.

We still don’t have access to information from the bank but I am not expecting there to be any significant credit balances. The bereavement form wouldn’t allow us to complete it without indicating whether we wanted to release funds for the funeral. If we speculatively said yes we then needed to provide the invoice details (amount and funeral directors banking details) which we don’t yet have. Funeral director won’t release them to me of course and I couldn’t persuade the person who made the contract to request them. They are reluctant/intimidated in dealing with any sort of external agency or service which is unfortunate given what lies ahead.

I’ve sent a request to CAB. I would happily pay for a couple of hours of a solicitor’s time myself but these aren’t relatives or so far willing to accept financial help...I’d have to get a solicitor to collude in offering a ‘free’ consult and billing me.