When an estate cannot pay everyone, the order in which the debts are paid is not a matter of judgement, kindness or who telephones most often. It is fixed by law, and an executor who departs from it can end up paying the difference personally. In England and Wales the rules come from the Administration of Insolvent Estates of Deceased Persons Order 1986, which takes the framework used in bankruptcy and applies it to the estate of someone who has died owing more than they owned.
The short version runs like this. Secured lenders take what their security covers. Then reasonable funeral, testamentary and administration expenses. Then preferential debts. Then the ordinary unsecured creditors, who share whatever is left in proportion to what they are owed. Then statutory interest. Then deferred debts, such as money owed to the deceased's spouse. The family come after all of that, which in an insolvent estate means they get nothing.
That is the whole answer, and the rest of this page is the detail: how each rank works, which debts belong where, what "reasonable" means for a funeral, and the assets that never enter the queue in the first place because they were never part of the estate.
At a glance
- An estate is insolvent when the assets will not cover the debts plus the funeral and administration costs.
- Secured creditors are effectively outside the queue. They take their security first and only join the queue for any shortfall.
- Reasonable funeral expenses rank ahead of every unsecured creditor, so the funeral director can be paid before the credit cards.
- Ordinary unsecured creditors are paid pro rata — a few pence in the pound each — not first come, first served.
- A debt owed to the deceased's husband or wife is deferred behind everyone else.
- Paying in the wrong order makes the executor personally liable for the loss. There is a safe route out, and it is worth taking.
- Assets that never entered the estate, such as a life policy written in trust, are not available to creditors at all.
First, is the estate actually insolvent?
Do the sum before you do anything else, because everything downstream depends on it. An estate is insolvent when the realisable assets are not enough to meet the debts and liabilities in full, including the funeral, the cost of obtaining the grant and the cost of administering the estate. It is not about whether the debts feel large. It is about whether the total covers everything.
Two things are commonly got wrong at this stage. The first is including assets that never belonged to the estate — a house held as joint tenants that passed automatically to the survivor, a pension death benefit paid at the trustees' discretion, a life policy written in trust. None of those are yours to distribute. The second is forgetting liabilities that have not surfaced yet: a tax return for the year of death, an overpaid benefit, an outstanding vehicle finance agreement, a personal guarantee given years ago for a business loan that nobody in the family knew about.
That last one catches people badly, because a guarantee does not die with the guarantor — the position is set out in whether a personal guarantee survives the guarantor's death. So does a debt owed the other way: where the deceased ran a limited company and had taken more out of it than he had put in, the company is a creditor of the estate, as explained in what happens to an overdrawn director's loan account at death.
If the estate is only marginally insolvent, or you are not sure, stop and take advice before paying anybody. If it is clearly insolvent, the order below governs everything you do next.
The statutory order, step by step
| Rank | Who gets paid | Typical examples |
|---|---|---|
| Outside the queue | Secured creditors, to the value of their security | Mortgage lender, logbook loan, hire purchase, a pawnbroker holding goods |
| 1 | Reasonable funeral, testamentary and administration expenses | Funeral director, probate fee, valuations, solicitor's costs of administering |
| 2 | Preferential debts | Employees' unpaid wages and holiday pay within statutory limits; certain taxes the deceased's business had collected for HMRC |
| 3 | Ordinary unsecured creditors, sharing pro rata | Credit cards, overdrafts, personal loans, utilities, catalogue and buy-now-pay-later debt, the deceased's own income tax, benefit overpayments |
| 4 | Statutory interest on those debts from the date of death | Only if rank 3 was paid in full, which is rare in an insolvent estate |
| 5 | Deferred debts | Money owed by the deceased to a spouse or civil partner |
| Last | Beneficiaries under the will or intestacy | Nothing, unless every creditor above has been paid in full |
Secured creditors are best thought of as standing to one side rather than at the front. A lender with a mortgage over the house sells the house and takes what it is owed out of the proceeds. Any surplus drops into the estate for everyone else. Any shortfall does not vanish — the lender joins the ordinary unsecured queue for the balance, alongside the credit cards. The same structure applies to goods held as security rather than land, which is why a pawnbroker's position differs from an ordinary creditor's; we cover that in whether a family can redeem pawned items after the owner dies.
Preferential debts rarely appear in the estate of a private individual and almost always appear where the deceased employed people. The ordinary preferential class covers employees' unpaid wages and holiday pay up to limits set by statute, and certain pension scheme contributions. A secondary preferential class covers taxes the business had collected on HMRC's behalf rather than owed in its own right — deductions from employees' pay and similar. Tax the deceased owed personally, such as income tax on self-employment, is not preferential. It queues with the credit cards.
Ordinary unsecured creditors are where the bulk of an ordinary person's debt sits, and the important word is pro rata. Whatever is left is divided in proportion to the size of each debt. A creditor owed twice as much receives twice as much. Being first to write, most aggressive, or most sympathetic makes no difference whatsoever. Government departments sit here too when they are recovering an overpayment, which is the position described in whether the DWP will want Pension Credit back from an estate. So do short-term lenders, and their conduct after a death is dealt with in whether a payday lender can chase the family.
Statutory interest and deferred debts are theoretical in most insolvent estates, because there is nothing left by the time you reach them. They matter in the borderline cases, and they matter to families, because the deferred class is where a loan from a husband or wife ends up.
Why funeral costs really do come before the credit cards
This is the single most useful thing in the order, and it is the one executors most often refuse to believe. Reasonable funeral expenses rank ahead of the unsecured creditors. A funeral has to happen, it cannot wait for an estate to be untangled, and the law recognises that by putting it near the front.
The load-bearing word is reasonable, and reasonable is measured against the size of the estate and the circumstances of the person who died, not against what the family would like. A dignified funeral for a modest estate is reasonable. An expensive one paid for out of an estate that cannot meet its debts can be challenged by creditors, and the executor can be left carrying the excess. The usual battlegrounds are headstones and memorials, and the cost of a wake, which is often argued not to be a funeral expense at all. If in doubt, keep the invoice explicable.
Where a family member has already paid the funeral from their own pocket, they become a creditor of the estate for that amount, ranking at the front with the funeral director rather than at the back with the family. That is a genuinely valuable position and people give it away by not documenting it; the practicalities are in reclaiming funeral costs you paid from your own pocket.
If there is no money at all and the person arranging the funeral is on a qualifying benefit, check the Funeral Expenses Payment on GOV.UK before committing to anything. Scotland has its own Funeral Support Payment administered by Social Security Scotland. Neither covers a full funeral, and both have to be claimed within a time limit, so make the claim early rather than after the invoice arrives.
Where the family sits in the queue
Last, and it is worth saying without decoration. Beneficiaries under a will or under the intestacy rules receive nothing until every creditor has been paid in full. In an insolvent estate that condition is never met, so the legacies in the will simply fail. A will is not a promise the law will find money to keep.
Three points soften or sharpen that, depending on the situation.
- A spouse who lent money to the deceased is a deferred creditor. Not a beneficiary, but not an ordinary creditor either — the loan ranks behind every other creditor and behind statutory interest.
- Family members are not personally liable for the deceased's debts. Not for a credit card in his sole name, not for a personal loan, not for a catalogue account. Liability only attaches where you were a joint borrower, a guarantor, or where you have received estate money that should have gone to creditors. A creditor who implies otherwise on the telephone is wrong, and you can say so.
- A claim for reasonable financial provision achieves nothing here. A court can only order provision out of the net estate, and in an insolvent estate there is no net estate to order it from.
What never enters the estate at all
This is the part that changes outcomes, and it is why the order of priority is not the end of the story for a widow or a widower.
Some assets pass on death without ever forming part of the estate, which means they never reach the queue and creditors cannot claim them. A house or a bank account held as beneficial joint tenants passes automatically to the survivor. A death benefit from a pension scheme paid at the trustees' discretion goes to the person the trustees choose. And a life insurance policy written in trust — including one written under the Married Women's Property Act 1882, which is still used — pays to the named beneficiaries directly. The money goes to the family, not into the pot, and the creditors have no claim on it.
Two honest qualifications. First, a policy written in trust deliberately to put money beyond the reach of creditors, at a time when the person already knew they were insolvent, can be challenged and unwound by the court. Trusts are for planning ahead, not for evading a known creditor. Second, where an insolvency administration order is made on a petition presented within five years of the death, the court has a specific power to require a surviving joint tenant to pay a sum representing the deceased's share of jointly held property. Survivorship is strong, but it is not absolute.
Read plainly, this is the practical lesson of the whole page. The difference between a family that loses everything to an insolvent estate and one that does not is usually a policy that was written in trust rather than left to fall into the estate. Level term cover is the ordinary shape of that: a fixed sum for a fixed number of years, arranged to cover the years when the debts and the dependants overlap. Whether cover is available and on what terms always depends on underwriting, and nobody can promise an outcome in advance. If it is worth finding out where you stand, you can get life insurance quotes and ask an FCA-authorised broker to set the policy up in trust from the start, which costs nothing extra and is far harder to arrange later.
The executor's personal risk, and how to avoid it
An executor who pays creditors in the wrong order, or pays a beneficiary while creditors go unpaid, is personally liable to the people who lost out, to the extent of the loss. That liability is not limited to what remains in the estate. It comes out of the executor's own money, and it is the reason a debt-ridden estate is a genuinely serious thing to take on.
Four protections exist, and they should be used in this order.
- Renounce before you intermeddle. Nobody has to act as executor. You can step back — but only if you have not already started dealing with the estate, because intermeddling forfeits the right to renounce. This is the decision to make first, not last, and it is covered in whether you can refuse to be executor of a debt-ridden estate.
- Advertise for creditors. A notice under section 27 of the Trustee Act 1925, placed in the London Gazette and in a newspaper circulating where the deceased's land is, allowing at least two months for claims, protects you against creditors you did not know about. It does not protect you against creditors you did know about, and it does not protect you against paying in the wrong order.
- Pay nobody until the picture is complete. Other than the funeral and the costs of administration, hold everything until you know the total of the debts. A payment made in month two to the creditor who shouted is a payment you may have to make again out of your own pocket in month nine.
- Consider handing it over. Where an estate is clearly insolvent and the debts are substantial, an insolvency administration order can be sought so that a trustee administers the estate under the bankruptcy rules instead of you. It costs money out of the estate, and it removes the risk from your shoulders entirely.
The underlying legislation for England and Wales is available in full as the Administration of Insolvent Estates of Deceased Persons Order 1986 on legislation.gov.uk. For a plainer walk through the same ground from the creditors' side, see who gets paid first when an estate owes more than it owns, and there is more across the subject in our guide to debt, credit and finance after a death. Free help is available from Citizens Advice and MoneyHelper, neither of which sells anything.
Scotland and Northern Ireland
The 1986 Order is an England and Wales instrument. Do not apply it north of the border or across the Irish Sea.
In Scotland, the estate is administered by an executor who obtains confirmation from the sheriff court. Where the estate is insolvent, the executor may apply for sequestration of the deceased's estate under the Bankruptcy (Scotland) Act 2016, and a creditor may petition for it too; the Accountant in Bankruptcy oversees the process. The ranking has a similar shape but its own vocabulary. Secured creditors take their security. Then come the privileged debts — deathbed and funeral expenses, and the expenses of administering the estate. Then preferred debts, then ordinary creditors sharing rateably, then postponed debts. The point families need to know is that a surviving spouse's prior rights and the legal rights of a spouse and children are calculated only from what is left after the debts have been met, so an insolvent Scottish estate leaves nothing for them either.
In Northern Ireland, grants are issued through the Northern Ireland Courts and Tribunals Service, and insolvency runs under Northern Ireland's own legislation rather than the Insolvency Act 1986. The priority order follows broadly the same pattern, but the statutory references, the forms and the court are different, so take advice locally rather than relying on guidance written for England.
Frequently asked questions
What order are debts paid in from an insolvent estate?
Secured creditors take what their security covers. Then come reasonable funeral, testamentary and administration expenses, then preferential debts such as employees' wages within statutory limits, then the ordinary unsecured creditors sharing what is left in proportion to what they are owed, then statutory interest, and finally deferred debts such as money owed to a spouse. Beneficiaries come after all of them.
Do funeral costs really get paid before the credit cards?
Yes, provided they are reasonable for the size of the estate. Reasonable funeral expenses rank ahead of unsecured creditors, which is why an executor can settle the funeral director's invoice before working through the rest. An extravagant funeral can be challenged by creditors, and an executor who authorises one may have to fund the excess personally.
Where do the family come in the queue?
Last, in practice. Beneficiaries receive nothing until every creditor has been paid in full, so an insolvent estate leaves them with nothing at all, and a debt owed to a surviving spouse is deferred behind other creditors. The exception is money that never entered the estate — property passing by survivorship, discretionary pension death benefits, and life cover written in trust.