Dealing with a Deceased Estate in Scotland

What happens when a person passes away with unpaid debts? Our Insolvency Associate Partner, Paul McDougall, explains the implications for the executor of an estate with unpaid debts.

What happens to debt when an individual passes away?

There is a common misconception that when a person passes away their debt is written off. Unfortunately, this is not the case if the deceased individual leaves an estate with assets.

When a debtor dies, no one is required to settle their debts unless the debts were in joint names, such as a joint loan or overdraft. However, if the deceased individual had assets, they are used to repay debts before beneficiaries can receive any inheritance. This underpins the main role of an executor.

If the level of the assets is insufficient to settle the outstanding debts, the estate is classed as insolvent. An executor then has an obligation to place the estate into an insolvent position. An Approved Money Advisor, or more likely an Insolvency Practioner, helps complete this step. One of our team can act as your Approved Money Advisor if you require.

Using bankruptcy of a deceased estate as a useful tool to repay debt

Under Section 14 (3), an executor or anyone entitled to be appointed as an executor can apply to the Accountant in Bankruptcy for the bankruptcy of the deceased estate. The application must be made no longer than 12 months after the day in which the executor knew, or ought to have known, that the estate was insolvent and likely to remain so.

This removes the need for formal confirmation and appointment of an executor. The Accountant in Bankruptcy then processes the application to sequestrate the estate. The estate funds can settle executor fees.

We have experience in dealing with insolvent deceased estates. Our team can assist with the application and formal appointment as a Trustee.

Get in touch

Are you the executor of an insolvent estate? For an initial discussion about your position, contact our in-house expert, Paul McDougall.