Some people believe that a debt dies with the person however this is incorrect. Once a person dies, any debts owed by that person, or owed to that person, remain and are now payable to/by their estate.
For example, a common and simple example is when a person dies and they own a property with a mortgage. The mortgage is not written off but instead remains against the property. The property is then sold and the mortgage balance taken from the sale proceeds. This is all dealt with by the people administering the deceased persons estate. This same principle applies to other debts.
If a person dies and they owe money, then their assets will be sold and the funds will be used to settle the debts. Any money remaining will fall into their estate to be distributed accordingly.
When a person dies and money is owed to them, so they are the creditor in the scenario, then following their death the monies are owed to their estate.
Disputes can often arise following the death of a creditor, as a debtor may seek to claim that as they are no longer alive, the debt is cancelled and can no longer be pursued. This is incorrect as anything that had been owed to the deceased during their lifetime can be pursued and recovered by the persons administrating their estate following their death.
The debt will be pursued by the persons administering the estate. If they can evidence the debt, for example by way of a loan agreement, then the debt can be pursued formally and should the debtor be reluctant to settle the outstanding sum, a claim for recovery can be issued through the courts.
In some instances however the debt may be more difficult to evidence as the loan may have been issued on a more informal and friendly basis. In situations such as this, there is often no documentation in support of the loan. It will therefore be necessary for the administrators to try and gather together whatever evidence may be available to them to demonstrate the existence of the loan and the requirement of the debtor to repay the funds into the estate.
When considering such matters, it is important for parties to keep cost proportionality in mind. Dealing with disputes can be costly and time consuming, and costs can quickly outweigh the potential recovery value.
If you require advice on how best to manage a potential debt involving an estate, whether it is owed by the estate or owed to the estate, get in touch with our specialist inheritance dispute solicitors on 0161 696 6178.
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