Benjamin Franklin once stated that in this world nothing can be said to be certain, except death and taxes. It is therefore reasonable to assume that companies will have to deal with recovering a debt from the estate of a deceased customer or client.

It is clearly important to ensure that such matters are dealt with in a sensitive manner. By understanding the various obstacles and pitfalls a creditor can make sure that cases are resolved swiftly and efficiently.

Solvent or Insolvent?

When an individual dies the administrator or executor of the estate will look to gather all their assets. The value of the estate will be assessed to determine whether or not it is solvent. If it is solvent, then all creditors are paid from the collected assets. However, if an estate is insolvent, debts would be paid in accordance with 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 jointly owned a property and the estate is deemed to be insolvent, a creditor may apply for a court order under s421A Insolvency Act requiring any joint owners to pay a sum up to the value of the deceased’s share in the property to a trustee in bankruptcy. This would then be used to settle the creditor and meet all or some of the deceased’s other debts.

Joint Tenants or Tenants in Common?

If the deceased jointly owns a property it must be established whether that ownership is as joint tenants or tenants in common as this will directly affect a creditors ability to realise the asset and therefore the money that is available to pay creditors.

In a joint tenancy, each proprietor owns the whole property. This means that if a proprietor dies the property automatically passes to the other joint proprietor(s). This is known legally as the right of survivorship.

In contrast, if a property is held as tenants in common, all owners have equal rights to possess the whole of the property, but each owns a specified proportion of it. This is not necessarily 50/50 and it may be that the proportionate interests in the property are divided in some other way. If one proprietor dies, the deceased’s proportionate interest will not pass automatically to the survivor and the value of their beneficial interest would be included in the assets of the estate available for distribution.

It is important to note that a charging order against a joint proprietor would sever any joint tenancy and convert it to a tenancy in common. Therefore any property which has a charging order secured against it will be held as tenants in common and the value of the deceased’s beneficial interest would be included in their estate.

Issuing a Money Claim against the Estate

Before taking steps to issue a claim against a deceased debtor estate, creditors should try to resolve the matter without the need for proceedings. However in some situations where the personal representatives are not co-operative, it may become necessary.

Part 19.8 of the Civil Procedure Rules (CPR) deals with the relevant procedure surrounding claims against deceased estates. Where a defendant against whom a claim could have been brought has died, it must be considered whether a grant of probate or administration has been made. If so, any claim should be brought against the persons appointed as personal representatives of the deceased. If no grant of probate or administration has been made, the claim should be brought against the estate of’ the deceased and a further application made to the court for an order appointing a person to represent the estate of the deceased for the purposes of the claim.

The claim would then proceed in the same way as any other money claim. The personal representative(s) would be afforded 14 days to respond to the claim form on behalf of the estate, failing which the claimant can make a request for a county court judgment in default.

Once a judgment is obtained against the estate the claimant should consider how it wishes to proceed with enforcement. When deciding how or whether to enforce a judgment, consideration should be given to the sensitive nature of the matter, in addition to the practical and commercial aspects which may influence the decision. For example, if a property was solely owned by the deceased or jointly owned as tenants in common, then a charging order application would be suitable to secure the debt and, provided equity was available, would result in payment should the property be sold as part of the estate distribution.

We at Greenhalgh Kerr have dealt with a number of matters recently involving deceased debtors and estates. If you are in a position where you are dealing with a deceased debtor and would like some advice, please feel free to contact Amy Fletcher on 0333 200 5206 or amy.fletcher@greenhalghkerr.com.