Insolvent estates
Updated 20 August 2026 · 6 minute read
Sometimes the sums come up short: the debts exceed the assets. An insolvent estate is not the family's problem to fund — debts die with the estate, not with the relatives — but it is a trap-rich environment for an executor who starts paying bills in the wrong order.
The golden rules
- Family members are NOT liable for the deceased's debts (unless they guaranteed or co-signed them)
- STOP paying ordinary bills the moment insolvency looks possible — the payment order below becomes law, and paying the wrong creditor first can land on the executor personally
- Secured creditors keep their security — the mortgaged house goes to the mortgage first, whatever else happens
- Get advice before taking the grant at all: nobody is obliged to administer an insolvent estate
The payment order
Funeral, testamentary and administration expenses
A reasonable funeral ranks first — even in insolvency. Then the costs of administering the estate itself.
Secured debts, from their security
The mortgage from the house, the car loan from the car.
Unsecured creditors, broadly by bankruptcy rules
Insolvent estates are administered by analogy with bankruptcy priorities — proportionally, without favourites. Paying Mum's credit card in full while the tax debt waits is the classic executor mistake.
Nothing for beneficiaries
If creditors aren't paid in full, no one inherits. Telling the family early is kinder than letting hope build.
An executor who distributes or pays out of order, knowing (or when they should have known) of insolvency, can be personally liable to disadvantaged creditors. If the numbers are close, run a formal statement of assets and liabilities before paying anyone but the funeral director.
Genuinely messy insolvent estates can be administered in bankruptcy (Part XI, Bankruptcy Act) with a trustee taking over entirely — the executor hands off the risk. For close-run estates, that option is the executor's safety valve.
Estate looking underwater?
Before paying a single bill beyond the funeral, a fixed-fee consult maps the order and shields you personally.
Get fixed-fee probate quotesDo we still need probate for an insolvent estate?
Only if assets need collecting. Many insolvent estates are administered informally — or not at all, with creditors left to their remedies against the assets.
Can the bank chase the family for the credit card?
No — unsecured debts are the estate's alone. Persistent collectors pointed at the estate's insolvency in writing generally stop.
What about jointly-held assets?
Joint assets pass to the survivor outside the estate — creditors of the deceased generally can't reach them (guarantees and specific security aside).
Sources
- State administration acts — insolvent estate provisions
- Bankruptcy Act 1966 (Cth) Part XI — deceased estates