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Don't think your debts die with you, You can still go bankrupt from your grave!

3rd Apr 2014
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There are several certainties in life - taxes and death, some might say divorce, plenty would say health scares - but one thing that is likely to affect many people nowadays is debt.  When you link debt and death you get an ugly and emotional combination.

Many people think that when you die, your debts die with you (except for IHT), but take note, it doesn't, debt survives, in fact it survives until it is settled (or statute barring applies, whichever is the sooner).

This means that when you die somebody else has to deal with your debt issues, so by not getting your affairs in order before that unfortunate day arrives you are leaving behind a messy set of circumstances for someone to deal with.  If this is a loved one, you really need to make sure you sort out things beforehand because the stress and upset it causes can be horrendous.  

In the worst case scenario, it is possible to make a dead person bankrupt!  Great news you might say if you are a creditor of a deceased person and you haven't been paid or think you're not receiving your fair share of money from the executors for whatever reason, but not so great if you are a family member going through a period of time where your dead relative's affairs are being torn apart and family assets are sold from underneath you.

By the way, you are right, I did say it was possible to make a dead person bankrupt.  When this happens the trustee in bankruptcy will take the same action he/she would have done when the person was alive, but what's worse is you might find transfers that the deceased made before he/she passed away are overturned and children/grandchildren can find themselves being forced to repay money or sell assets.

The prospect of this happening you would think is never, but we have worked on several matters where this has happened, sadly in some cases it is where husband hasn't told wife about the full extent of his business affairs or has simply forgotten about that personal guarantee he signed years ago, but it could simply be from credit card debts that have accrued from living costs.  One other case was where a disputed court case was settled after his death and wife refused to 'reach a commercial settlement by releasing the equity from her husband's share of the property she received on his death', so the creditor had no choice but to make the deceased husband bankrupt and it ultimately saw the marital home sold.

When it comes to dividing up the assets of a bankrupt the debts must be paid from the assets before the remainder is split between relatives.  Where it isn't a bankruptcy will overturn those transactions.  Very few executors of wills know this fact and very few executors know that personal liability can attach to those transfers where they have not made sure everything has been dealt with properly and/or that the deceased isn't bankrupt at the time any transfers are made.

We have worked with both a variety of individuals, both old and young to get their affairs into order before this happens, along with a variety of creditors owed money by deceased individuals to ensure they are appropriately recompensed in relation to their debt.  

The subjects of debt and death are emotional, by not dealing with both before someone leaves the land of living creates a potentially volatile cocktail and a situation that it is far from ideal for all concerned.  Never forget, debt doesn't die just because a debtor does.  

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By User deleted
03rd Apr 2014 15:57

Lloyds of London - Hardship Agreement ...

Here is an interesting one - life + 20 years

Executor - discussing Lloyds of London hardship agreement

The deceased was a Lloyd's Name but took hardship terms in 1993 and entered into a Hardship Agreement in 1999.

The terms of the Hardship Agreement provide that providing there is no default/breach of the Hardship Agreement either by the deceased or his spouse during their lifetime (the spouse predeceased the testator) or by his executors after his death during the period of 20 years following the date of death then Lloyds will not pursue the central fund indebtedness

 

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By LucasJohnson
03rd Apr 2014 17:49

What's hard about that ship agreement!??

So the executors are keeping everything crossed and checking and double checking every i is dotted and every t is crossed!??

In all seriousness, this is clearly a complex area and it would be awful if bankruptcy proceedings happened (e.g.) some 10 years after death.  

Out of interest, do you know whether a Yorke Order is available in such circumstances?

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