Are you a creditor that is looking into debt recovery from deceased estates, but are confused about how it works and where you can start?
If so, you may be feeling very stressed about the matter as it can be difficult to collect debts in general even without this added complication.
Collecting debt from a deceased estate is a delicate process. As there is someone that has died, emotions are high and concerns about debts are generally quite minimal.
Imagine if someone close to you died and you are trying to navigate the grief of the scenario and the arrangements of the funeral. Sounds pretty emotionally painful, right?
Now imagine you have to concern yourself with debt repayments and financial matters. Saying this, it is a process that must be done!
After all, there could be significant funds to collect, and it may be the difference between your financial stability. That being said, there is a lengthy and complicated process involved, that can be difficult to begin.
In this article our debt recovery lawyers & estate litigation lawyers will discuss the process and details of debt recovery from deceased estates, and how you can navigate this process for the best results.
What is a Deceased Estate?
If you have never been involved in a matter like this, this is an important place to start!
The term ‘deceased estate’ refers to the total assets, liabilities, and responsibilities left behind by a person who has died.
Death can be quite sudden. Not everyone has time to prepare themselves for their passing and it can be difficult to do so even if they are aware.
This can result in a list of issues left behind for others to deal with! As difficult as it can be, sometimes the family or loved ones of the deceased is required to make arrangements with any creditors or people involved in another contract with the deceased for the process to begin.
A deceased estate encompasses all financial affairs that the person that passed was involved in. This includes their home and any other belongings, any outstanding debts, and all financial agreements and contracts that they were a party in.
In many circumstances, the deceased person will create the instructions regarding their estate with a lawyer and relay them in the form of a Will.
This is to rid the potential beneficiaries of the estate of legal action or conflict, or simply to ensure that their wishes are followed properly.
Can I Claim Debt Recovery from Deceased Estates
Yes, the property of the deceased vests in the executor and can be used to pay the debts of the deceased in solvent estates.
Debt is defined in section 5 of the Succession Act 1981 (Qld) which says:
The term ‘deceased estate’ refers to the total assets, liabilities, and responsibilities left behind by a person who has died.
Section 56 of the Succession Act 1981 (Qld) says:
The property of a deceased person which on his or her death devolves to and vests in his or her executor or the public trustee is assets for the payment of his or her debts and any disposition by will inconsistent with this enactment is void as against creditors, and the court shall, if necessary, administer the property for the purposes of the payment of the debts.
If the estate does not have enough money to pay its debts it is an insolvent estate.
The payment of debts in the case of insolvent estates is dealt with at section 57 of the Succession Act 1981 (Qld) which says:
Where the estate of a deceased person is insolvent—
(a) the funeral, testamentary and administration expenses have priority; and
(b) subject as aforesaid and to this Act, the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors and as to debts and liabilities provable and as to the valuation of annuities and future and contingent liabilities, respectively, and as to the priorities of debts and liabilities as may be in force for the time being under the law of bankruptcy with respect to the administration of estates of deceased persons in bankruptcy.
This essentially means that except for the cost of the funeral and any testamentary and administration expenses, the balance of the estate is administered as if it were a bankruptcy.
Secured vs Unsecured Debt
When managing debts from a deceased estate, a key consideration that should be made is regarding whether or not the debt is secured. There are two types of debt that can be dealt with by the executor of the Will, secured or unsecured debt.
Secured debts are debts that are backed by collateral. This means that if the borrower does not make payments on the loan, the creditor can claim the collateral and they do not lose all that much.
An example of a secured loan is a home loan. If you take out a home loan and do not make payments towards it, the bank can claim the house and sell it. The risk on these types of loans is relatively low as the collateral acts as security for the creditor. Payments of debts on property mortgaged or charged is dealt with at section 61 of the Succession Act 1981 (Qld) which says:
(1) Where a person dies possessed of, or entitled to, or under a general power of appointment by will disposes of, an interest in property, which at the time of his or her death is charged with the payment of any debt, whether by way of mortgage, charge or otherwise, legal or equitable (including a lien for unpaid purchase money), and the deceased has not by will signified a contrary or other intention, the interest so charged shall, as between the different persons claiming through the deceased, be primarily liable for the payment of the debt; and every part of the said interest, according to its value, shall bear a proportionate part of the charge of the whole thereof.
(2) A contrary or other intention is not signified by a general direction, charge or trust for the payment of debts or of all the debts of the testator out of the testator’s estate or out of the testator’s residuary estate or by a gift of any such estate after or subject to the payment of debts.
An unsecured debt, on the other hand, is a debt that is not backed by collateral (such as real property) and is given based solely on the credit of the debtor.
If this loan is not paid, the creditor will have to take legal action against the debtor for it to be paid.
Depending on the type of debt that you are looking to collect your process will look quite different. If you are the creditor for a secured debt, you can simply claim the collateral and move on. An unsecured debt will need to be paid from the estate but will come only after secured loans are paid.
Notification to Debtors from Deceased Estates
The next step that must be taken by the ones close to the deceased or the executor of the Will in order for the process to proceed is that you must be notified of the passing of the deceased.
Although this particular element of the collection from a deceased estate process is not your personal responsibility, it is best to know as much about the process as you can.
This way, you will be informed and can follow up with the executor if they are yet to notify the creditors of the death and you have found out through other routes.
The executor of the deceased’s will should formally contact you to inform you of their death.
Section 67(1) of the Trusts Act 1973 (Qld) states:
With a view to the distribution of any trust property or estate a trustee or personal representative may give notice by advertisement in—
(a) if the notice is included in a notice of intention to apply for a grant—a publication approved by the Chief Justice under a practice direction; or
(b) otherwise—a newspaper circulating throughout the State and sold at least once each week;
and such other notices as would be directed by the court to be given in an action for administration, requiring any person having any claim, whether as creditor or beneficiary or otherwise, to send particulars of the person’s claim not later than the date fixed in the notice, being a date at least 6 weeks after the date of publication of the notice.
After notice is given as above, the executor of the deceased estate will gather your information from the debtor’s financial information and prepare to contact you and all other creditors; or you will need to contact them within at least 6 weeks after the date of publication of the notice.
This process should be done in a timely manner so that you can start the process of collecting the debt as soon as possible. If a creditor does not notify the deceased estate, then section 67(3) of the Trusts Act 1973 (Qld) states:
After the date fixed by the last of the notices to be published the trustee or personal representative may distribute the trust property or estate having regard only to the claims, whether formal or not, of which the trustee or personal representative has notice at the time of the distribution; and the trustee or personal representative shall not, as respects any trust property or estate so distributed, be liable to any person of whose claim the trustee or personal representative had no notice at the time of the distribution.
Submitting a Claim for Debt Recovery from Deceased Estates
When looking to recover a debt from a deceased estate, the next step that must be taken is to submit a claim against the estate.
This involves you stating that you wish to collect a debt from the estate, as above.
Once the executor of the will has sent out the notice of the death stating that any creditors must take action to claim their debt, you will be allowed 6 weeks to submit your claim.
Verification of Debt to the Deceased Estate
Once you have made your claim against the estate to collect your debt, you must verify the existence of the debt.
Dealing with the estate of a deceased individual is a matter of the law. It involves regulations and processes that must be followed according to Queensland legislation.
Like many other matters of the law, it also requires evidence to make a claim of a debt against the estate of the deceased. You must provide evidence that this person legitimately owed you a debt in order to collect it.
This can be pretty straight forward if there was a contract created. If not, it may be a little difficult to prove. Any records that you have, or discussions recorded of the client acknowledging the debt will likely suffice as evidence depending on the executor of the will.
Once you have provided evidence, the executor of the will should analyse it to make sure that it is legit, and you can then move on to collecting the debt.
Priority of Payment of Debt from Deceased Estates
Priority of payment is another important consideration when you are looking to collect a debt from a deceased party. The Executor of the deceased estate, when settling the debts of the deceased, may (as a guide) prioritise payment in the following order:
- Funeral and testamentary expenses.
- Payment of secured debts.
- Costs of administration.
- Ordinary debts and liabilities.
As the person is no longer alive, they will no longer have any form of income coming into their estate. This means that their estate is limited to whatever it is when they die, which will eventually run out as it is used to make payments and is distributed to beneficiaries.
What happens if there is not enough money in their estate today all of their debts, though? Which debts are treated as a priority, and which are paid only if there is enough money?
Estates of this kind are considered to be insolvent estates and can be administered by a bankruptcy trustee, as stated under the Bankruptcy Act 1966. This means that a professional in managing insolvency can come into the matter and divide the estate appropriately among creditors.
The costs of a funeral are the priority in any circumstance in Queensland, however.
Negotiation of Debt Recovery from Deceased Estates
Negotiation of the debt is another step that may be relevant in your matter when you are dealing with debt recovery from deceased estates.
When someone dies, there are a lot of costs and emotional turmoil that must be dealt with. This can take a lot, both mentally and financially, out of the family of the deceased, which can be difficult to deal with.
In these situations, they may come to you asking if you would be willing to negotiate the debt in any way. You are in your rights to refuse to negotiate and simply request that the money is taken out of the estate and paid.
However, you may also wish to engage in the negotiation if you sympathise with the family or do not want to get involved in an expensive legal battle.
This may take some negotiation on your part to allow this, however, which may be something that you are willing to do. When you negotiate, make sure to hold your needs firm. It may just be a matter of extending the payment period out a little or something along those lines!
Debt Recovery from Deceased Estates Disputes
When you are looking to collect a debt from a deceased estate, you may be faced with some disputes from the beneficiaries. This can be difficult for all involved.
When involved in a dispute, you should first consult a lawyer to advise on what action is best to take and how this may work for you.
Depending on your circumstance, your lawyer will likely recommend that you engage in alternative dispute resolution prior to civil litigation. Alternative dispute resolution can be extremely effective in resolving a matter outside of court, which is generally better for both parties, so that you can move on with as little resources put into this matter as possible.
It involves methods such as mediation, the process of gathering with the other party and an impartial mediator to discuss and resolve the issue, or arbitration, where the third party will listen to both side and decide on the better option for you!
However, you choose to act, make sure that the method works for your effectively and that you have done your due diligence before taking any type of action!
Exceptions to the Rule
Another consideration that you should make are the more complicated and exceptional matters to the general rules that we have discussed earlier. It is vital to note that not all cases will look exactly how we have stated in this article.
For instance, specific types of debts are discharged upon the death of the borrower, and some assets will not form part of the deceased estate as it will pass to the joint owner by survivorship.
Furthermore, cases of insolvent estates, which were discussed earlier, will be quite complicated and you may not be paid the debt owed due to payment priorities.
Another case may be if the debt in question had co-signers, meaning other people that would pay the debt if the main party did not, or joint debt holders, meaning they shared debt payments with the deceased.
Co-signers can be held personally liable for all of the debts upon the death of the main signer. Joint signers will likely be solely responsible for the debt.
What Cannot be Used for Debt Recovery from Deceased Estates
Assets held jointly by the deceased and another person (wife / husband for example), such as money in a bank account, stocks / shares, and real property, will not form part of the deceased’s Estate, and will not be available to pay the estates’ debts.
Instead, they will be transferred to the surviving joint tenant/s by a process known as survivorship.
If the deceased had a policy of life insurance had a superannuation fund with a designated a beneficiary to receive the benefits upon their death, those benefits will be directly paid to the nominated beneficiary.
These benefits also do not constitute part of the deceased’s Estate and, therefore, cannot be utilised to settle the deceased’s debts.
Debt Recovery from Deceased Estates FAQ
As estate litigation lawyers and debt recovery lawyers, we get asked the same questions quite often. In this FAQ section we attempt to answer those questions.
What is a deceased estate?
The term ‘deceased estate’ refers to the total assets, liabilities, and responsibilities left behind by a person who has died.
What is the difference between secured and unsecured debt when collecting from a deceased estate?
Secured debts are debts that are backed by collateral. This means that if the borrower does not make payments on the loan, the creditor can claim the collateral and they do not lose all that much.
An unsecured debt, on the other hand, is a debt that is not backed by collateral (such as real property) and is given based solely on the credit of the debtor.
How do creditors submit a claim for debt recovery from a deceased estate?
Once the executor of the will has sent out the notice of the death stating that any creditors must take action to claim their debt, you will be allowed 6 weeks to submit your claim. This involves you stating that you wish to collect a debt from the estate, as above.
What is the priority of debt payment from a deceased estate?
Priority of payment is another important consideration when you are looking to collect a debt from a deceased party. The Executor of the deceased estate, when settling the debts of the deceased, may (as a guide) prioritise payment in the following order:
- Funeral and testamentary expenses.
- Payment of secured debts.
- Costs of administration.
- Ordinary debts and liabilities.
What happens if there are not enough assets in the deceased’s estate to cover all the debts?
Estates of this kind are considered to be insolvent estates and can be administered by a bankruptcy trustee, as stated under the Bankruptcy Act 1966. This means that a professional in managing insolvency can come into the matter and divide the estate appropriately among creditors.
Can a creditor negotiate the repayment terms with the executor of the deceased’s estate?
When someone dies, there are a lot of costs and emotional turmoil that must be dealt with. This can take a lot, both mentally and financially, out of the family of the deceased, which can be difficult to deal with.
In these situations, they may come to you asking if you would be willing to negotiate the debt in any way. You are in your rights to refuse to negotiate and simply request that the money is taken out of the estate and paid.
Are there any exceptions or special circumstances that may affect the debt recovery process from a deceased estate?
Specific types of debts are discharged upon the death of the borrower, and some assets will not form part of the deceased estate as it will pass to the joint owner by survivorship.
