Q&As

Where an estate is insolvent, would bank accounts where the deceased is overdrawn, credit cards where there are balances to pay, and income tax outstanding to HMRC, be considered ordinary debts or preferential debts, and how should interest on these be treated?

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Produced in partnership with Harriet Brown of Old Square Tax Chambers
Published on LexisPSL on 02/12/2015

The following Restructuring & Insolvency Q&A produced in partnership with Harriet Brown of Old Square Tax Chambers provides comprehensive and up to date legal information covering:

  • Where an estate is insolvent, would bank accounts where the deceased is overdrawn, credit cards where there are balances to pay, and income tax outstanding to HMRC, be considered ordinary debts or preferential debts, and how should interest on these be treated?

Where an estate is insolvent, would bank accounts where the deceased is overdrawn, credit cards where there are balances to pay, and income tax outstanding to HMRC, be considered ordinary debts or preferential debts, and how should interest on these be treated?

The estate of a deceased person is insolvent if, when realised, it will be insufficient to meet in full all the debts and other liabilities to which it is subject—see the Insolvency Act 1986, s 421(4) (IA 1986). This answer deals only with the case of an insolvent estate, ie one which is discovered to be insolvent after death; it does not cover the situation where a person already subject to a bankruptcy or an IVA subsequently dies (where the position is usually that matters proceed as usual, with some amendments).

Similarly, however, the statutory provisions on the administration (ie the vesting, acquisition, control, distribution etc) of a bankrupt's estate (IA 1986, ss 306 – 349) should apply to the administration in bankruptcy of the insolvent estate of a deceased debtor (provided there has been an insolvency administration order). This will, however, be subject to certain modifications specified in the Administration of Insolvent Estates of Deceased Persons Order 1986, SI

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