It is a common misconception that when a person dies, his/her debts are automatically discharged. Debts are not discharged on death unless specific provision has been made for them to be discharged, e.g. by an insurance policy. All debts that are not provided for must be met from the assets of the deceased debtor. Where the assets are insufficient to meet all the debts, the estate is insolvent.
Where a person dies after a bankruptcy petition is presented against him/her, the matter continues as a normal bankruptcy with some amendments.
Where a person dies before a bankruptcy petition is presented, a petition for an insolvency administration order can be presented under the Administration of Insolvent Estates of Deceased Persons Order 1986 (AIEDPO86). The administration of the insolvent estate is dealt with under the provisions of the AIEDPO86, which applies and amends certain provisions of the Insolvency Act 1986.
Where a person dies before a bankruptcy petition has been presented, a petition for an insolvency administration order can be presented to the court by;
Where the petition is presented by a creditor or personal representative the court must be shown that it is reasonably probable that the estate is insolvent before an insolvency administration order will be granted.
Between the presentation of the petition and the making of an insolvency administration order, the court may appoint the official receiver as interim receiver to protect the assets. The official receiver's duties may be restricted so care should be taken to ensure any restrictions are observed. Otherwise, the official receiver as interim receiver has all the powers and duties of a receiver and manager. The personal representative has a duty to co-operate with the interim receiver and to provide details of the assets which should be taken into immediate possession pending the hearing of the petition.
(Amended September 2012)
On receipt of an insolvency administration order, the official receiver should contact the deceased debtor's personal representative as soon as possible. The personal representative is either the person named as executor in the deceased debtor's will with the responsibility of administering the estate of the deceased, or where the deceased debtor died without making a will (intestate), a person who is known as the administrator, who is granted letters of administration by a court of probate. A search to establish whether a grant of representation has been issued can be carried out by completing the probate search form PA1S (which can be found at hmctscourtfinder.justice.gov.uk under "forms and guidance") and sending it to:
The Postal Searches & Copies Department
Leeds District Probate Registry
A fee of £6 is payable for a search to be carried out , which covers the four year period from the date of death. There is an additional fee of £4 for each subsequent four year period searched. If a grant is traced, the fee includes a copy of the grant, and a copy of the will if there is one. Cheques should be made payable to "HM Paymaster General".
A grant cannot be located without at least the correct full name of the deceased debtor, and the year from which the search is to begin. The Probate Service aims to supply copies of documents within 21 working days of receipt of an application.
Where there is no personal representative or administrator, the official receiver should contact the closest surviving relative of the deceased debtor. Where this Part refers to personal representative, it should be taken as meaning the personal representative, administrator or closest surviving relative as applicable.
The personal representative may be a professional person, such as a solicitor, or a relative of the deceased debtor. Where the personal representative is a relative, the official receiver should be sensitive in dealing with him/her to avoid adding to the natural distress he/she may be feeling.
A statement of affairs must be submitted to the official receiver within 56 days of the insolvency administration order being made. The personal representative is required to complete this, or, in the absence of a personal representative, such other person as the court may direct. The statement of affairs should contain both the position at the date of death and at the making of the insolvency administration order, and should be completed on the statutory form SADI.
The personal representative has similar duties to that of a bankrupt in a bankruptcy. As well as the duty to submit a statement of affairs, he/she must notify the official receiver of any assets which may be claimed for the estate by the trustee, provide an inventory of the estate to the official receiver, attend on the official receiver as reasonably required, and provide information regarding the assets, liabilities and affairs of the deceased debtor. If the personal representative fails to comply with his/her obligations he/she may be guilty of a contempt of court, and the official receiver may apply for him/her to be privately examined if he/she will not comply with his/her obligations voluntarily.
The official receiver becomes receiver and manager when the insolvency administration order is made, and control of the estate is removed from the personal representative on that date.
Some protection is afforded to the personal representative regarding asset disposals made between the presentation of a petition for an insolvency administration order and the date of the order so long as the disposal was carried out in good faith. It is probable that good faith means without notice of the petition or without awareness of the insolvency of the deceased debtor.
Where the personal representative has notice of the petition, he/she is restrained from disposing of any of the assets of the estate. If the official receiver becomes aware that such a disposal has been made by the personal representative after notice of the petition, and it has not been subsequently ratified by the court, he/she should immediately write to the person to whom the payment has been made or the asset been transferred, requiring them to hold the monies or property to the order of the official receiver for the benefit of the insolvent estate.
Notices similar to those issued on the making of a bankruptcy order should be sent out. All notices sent out should be headed "In the matter of the Administration of Insolvent Estates of Deceased Persons Order 1986", and should refer to an insolvency administration order and the deceased debtor.
The deceased debtor must not be referred to as a bankrupt and the terms "bankruptcy" and "bankruptcy order" must not be used.
The official receiver should contact the deceased debtor's personal representative immediately using form NPRDD (notice to personal representative of deceased debtor), and enclosing a statement of affairs form SADI (statement of affairs for deceased insolvent) for completion by the personal representative, who should also be asked to provide a copy of the death certificate and a copy of the last will made by the deceased debtor prior to his/her death.
It will not usually be necessary to ask the personal representative to complete a preliminary information questionnaire B40.01/PIQB. If more information is needed in addition to that contained in the statement of affairs, it will generally be more appropriate for the official receiver to ask the personal representative further questions as necessary.
If there are sufficient assets to warrant the appointment of an insolvency practitioner as trustee, the official receiver should call a meeting of creditors in the usual way. All notices and forms sent should be amended to make it clear that the meeting relates to the insolvency administration order and not to a bankruptcy order. The proof of debt forms should show the date of death as being the date to which claims should be made.
The official receiver has the normal duties of a receiver and manager or trustee in bankruptcy. In addition, if the official receiver is trustee, he/she must have regard to any claim made by the personal representative in respect of reasonable funeral, testamentary and administrative expenses incurred. These claims have priority over the preferential debts, but are only payable from the estate balance if it is in credit after all administrative expenses of the insolvency administration order have been paid. The official receiver should take account of such a claim before making any distribution to creditors.
As trustee, the official receiver's title to the assets dates back to the date of death as if the presentation of the petition, the insolvency administration order and the death all took place on the same day. A deceased debtor’s share in property held on a joint tenancy does not form part of his/her estate which passes under his/her will or intestacy; it passes by survivorship to the surviving joint tenant. Because of the right of survivorship when an insolvency administration order is made, the deceased debtor’s interest in jointly held assets, such as a balance in a jointly held bank account, will pass to the surviving partner. The deceased debtor’s interest in jointly held assets (other than those held under a tenancy in common) will not fall within the estate, but see also part vii (What happens to property that was owned under a joint tenancy by the deceased debtor prior to his/her death?)
The official receiver has no statutory duty to investigate the affairs of the deceased debtor unless he/she thinks fit.
The deceased debtor's interest in property owned under a joint tenancy will pass automatically to the other joint owner or owners by right of survivorship, and will never become part of the insolvency estate.
The trustee may seek to recover the value of the deceased debtor's interest in the property that has been lost to the estate by making an application to the court under section 421A. On the application of the trustee the court may make an order requiring the surviving partner to pay to the trustee an amount not exceeding the value lost to the estate. Section 421A came into force on 02 April 2001 and applies where an insolvency administration order has been made in respect of the deceased debtor and the petition for that order was presented within the period of five years beginning on the day on which he/she died.
Where the deceased debtor’s sole or principal residence is owned solely by the deceased debtor or is jointly owned under a tenancy in common the provisions of section 283A may apply. Section 283A was introduced by the Enterprise Act 2002 and provides that the interest in such a dwelling-house will re-vest in the bankrupt 3 years from the date of the bankruptcy order (or 3 years from the date the official receiver or other trustee becomes aware of its existence) without conveyance, assignment or transfer unless the trustee has taken action to dispose or otherwise deal with the bankrupt’s interest in it. AIEDPO86 Schedule 1 Part II paragraph 12 adopts sections 283 to 285 and current legal advice is that this includes section 283A but no provision is contained in the legislation to modify the language of section 283A in order to apply to the estate of a deceased debtor. An amendment to the AIEDPO86 may be made in the future to clarify this position.
In the meantime the official receiver should assume that section 283A does apply and in the case of a deceased debtor with a solely owned property or a tenancy in common in a dwelling house, the interest in the dwelling house would vest in the personal representatives of the deceased (or such person as the court may order) if the trustee took no action within 3 years. The official receiver should therefore take all necessary steps to realise his/her interest in the property within the three year period (starting at the date of death) in order to avoid a later claim that the property ceases to be comprised in the insolvency estate by virtue of section 283A.
When a debtor dies after a bankruptcy petition is presented the proceedings will continue as normal, and if an order is made by the court it is a bankruptcy order and is administered accordingly, with some necessary modifications. The deceased debtor's personal representative or other appropriate person is required to complete a statement of affairs. The reasonable funeral and testamentary expenses have priority over the preferential debts, whether the deceased debtor dies before or after the making of the bankruptcy order.
Where a deceased debtor owned property under a joint tenancy and died after a bankruptcy petition was presented but before a bankruptcy order was made, the deceased debtor's interest in the property passes to the surviving tenant and does not form part of the estate. Section 421A does not apply in this case, and the value lost to the estate cannot be recovered.
a The court can annul an insolvency administration order if the order should not have been made or if the debts and costs of the proceedings have been paid in full or secured to the satisfaction of the court.
b A petition for an insolvency administration order may not be presented where proceedings for the administration of the deceased debtor's estate have commenced in another court, for example, where a suit has been instituted in the Chancery Division for the administration of the deceased debtor's estate. Such proceedings may be transferred to the bankruptcy court where it appears that the estate is insolvent, thus enabling an insolvency administration order to be made.
Where can I find out more?
Case Help Manual
Insolvency Act 1986 as amended by The Administration of Insolvent Estates of Deceased Persons Order 1986 (both Acts should be read together):
s264 Who may present a bankruptcy petition - amended by Sch 1, Part II, para 1 Sch 3, Forms 1, 2, 3, 6
s266 Other preliminary conditions - amended by Sch 1, Part II, para 2
s267 Grounds of creditor's petition - amended by Sch 1, Part II, para 3
s271 Proceedings on a creditor's petition - amended by Sch 1 Part II, para 5
s272 Grounds of a debtor's petition - amended by Sch 1 Part II, para 6
s283 Definition of a bankrupt's estate - amended by Sch 1 Part II, para 12
s283A Bankrupt's home ceasing to form part of estate - applied by Sch 1 Part II, para 12
s286 Power to appoint an interim receiver - amended by Sch 1 Part II, para 13
s287 Receivership pending appointment of trustee - amended by Sch 1 Part II, para 14
s288 Statement of affairs - amended by Sch 1 Part II, para 15
s289 Investigatory duties of official receiver - amended by Sch 1 Part II, para 16
s291 Duties of bankrupt in relation to official receiver - amended by Sch 1 Part II, para 17
s305 General functions of trustee - amended by Sch 1 Part II, para 20
s366 Inquiry into bankrupt's dealings and property - amended by Sch 1 Part II, para 30
s421A Insolvent estates: joint tenancies
Forms to be used
NPRDD - Notice to personal representative of deceased debtor
SADI - Statement of affairs, deceased insolvent
LOIS screen references are given in brackets e.g. (DO 73)