The strict legal order for paying creditors when an estate cannot cover all its debts, executor personal liability risks, and how to protect yourself.
This guide is part of ProbateHelp's Probate Process guide cluster. Estimated reading time: 18 min.
Frequently asked questions
Do I have to pay the deceased's debts from my own money?
No — not unless you signed for the debt jointly or acted as a guarantor. As executor, you administer the estate's assets to pay the estate's debts. If the estate runs out of money before all debts are paid, the remaining creditors simply go unpaid. Your personal assets are not at risk, provided you follow the correct order of priority. The risk of personal liability arises only if you pay creditors in the wrong order, distribute assets to beneficiaries prematurely, or give away items that should have been available to creditors.
What if I have already paid some debts before realising the estate is insolvent?
This is a genuinely difficult situation. If you have paid a lower-priority creditor before a higher-priority one, you may be personally liable to the higher-priority creditor. Take legal advice immediately. In some cases, it may be possible to recover the payment from the creditor you paid (particularly if they knew the estate was insolvent), but this is not straightforward. Acting quickly and getting professional advice is the priority.
Can HMRC take priority over other creditors?
HMRC's claim for the deceased's own income tax, capital gains tax, penalties, and interest is usually unsecured. If the deceased ran a business, some VAT, PAYE, employee National Insurance, student loan deductions, and Construction Industry Scheme deductions can have secondary preferential status in a formal insolvency. Take advice before ranking HMRC debts in a business estate.
What happens if I cannot find all the creditors?
Placing a Section 27 notice in The Gazette, with a local newspaper notice where appropriate, can protect you against unidentified creditors who come forward after you have distributed the estate, provided you wait at least two months from publication. It does not protect you against creditors you already know about.
What happens to the beneficiaries if the estate is insolvent?
Beneficiaries receive nothing. The entire estate is used to pay creditors in the order of priority. If the estate is so insolvent that even the funeral expenses cannot be covered in full, the funeral director may have to write off part of their bill or pursue the family members who arranged the funeral personally (though this is rare in practice). The will is effectively irrelevant in an insolvent estate — it cannot override the statutory order of priority for creditors.
Should I apply for an Insolvency Administration Order?
Not necessarily. Many insolvent estates are administered informally without a court order. Formal administration is most useful when creditors are numerous or disputing their claims, when you are concerned about personal liability, or when a creditor is threatening legal action. If the estate is straightforward — a few creditors, no disputes, and you are comfortable following the order of priority — informal administration is usually sufficient. If you are in any doubt, take advice from a solicitor with insolvency experience before deciding.