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Bankrupt Deceased Estate NT

When someone in the Northern Territory passes away with more debts than assets, their estate is insolvent. This includes estates where the deceased was insolvent at the time of death, as well as estates that become insolvent as the personal representative pays the debts of the deceased. This article explains what happens with a bankrupt deceased estate in the Northern Territory.

Bankrupt Deceased Estates In The Northern Territory

When a person dies after starting bankruptcy proceedings, the process will continue as if he or she was still alive.

If someone was not bankrupt at the time of death, the estate could become bankrupt if the deceased estate does not have sufficient assets to cover the estate debts. However, it is important to know that when there is insufficient value in the deceased estate to pay off all the debts, the remaining unpaid debts do not need to be paid by the deceased’s family. Any residue debts are extinguished after the administration ends. This applies except when the deceased held the debt jointly with another person (such as a joint tenancy mortgage) or someone signed guarantor for the deceased’s debt. In these cases, the surviving person inherits the entire debt.

Process For Bankrupting A Deceased Estate

The estate executor (or administrator) and any creditor who is owed $10,000 or more can file for administration of the estate in bankruptcy. Creditors must wait for the estate assets to be available before outstanding debts are paid. A person can pursue damages against a deceased estate even if there was no contract between them and the deceased.

The process and requirements for bankrupting an estate are then very similar to how a living debtor is made bankrupt. One notable difference is that there is no requirement for the deceased debtor or the estate administrator to commit an “act of bankruptcy” (such as failing to comply with a bankruptcy notice).

A bankrupt deceased estate in the Northern Territory is administered by following a legally sanctioned order of payments to creditors. With bankrupt estates, testamentary, funeral and administrative expenses have priority of payment. After that, secured creditors (such as a bank holding a mortgage) have a contractual right to recoup from the debtor’s assets. Even when an asset with a mortgage is bequeathed to a named beneficiary, the beneficiary is responsible for paying out or assuming the mortgage.

Preserved Assets

Some of the deceased’s assets are “preserved” from use to pay off outstanding debt. Life insurance policies are exempt from any bankruptcy under the Life Insurance Act 1945 (Cth). Similarly, superannuation funds are protected from being used except for necessary testamentary and funeral expenses. However, a testator can specify in their will or a contract that these traditionally-preserved assets can be used to discharge estate debt.

Bankruptcy Legislation

In the Northern Territory, a bankrupt deceased estate is administrated according to either state or federal law. If an administration in the Northern Territory is particularly complicated or needs independent investigation, it is best to administrate the bankrupt deceased estate according to the federal Act. On the other hand, a state legislation approach is suitable to address simpler insolvent deceased estates.

Federal Law

Under the federal Bankruptcy Act 1966, all deceased estate assets are distributed equitably amongst a bankrupt’s creditors.

When an estate is administered by a trustee in bankruptcy, the executor or administrator does not actually participate in the estate administration. Utilising the Bankruptcy Act means that an expert Independent Appointee acts as Trustee, assuming the legal and commercial risk. This Trustee works to an expanded priority payment regime. For instance, they prioritise testamentary and funeral expenses. He or she has the authority to set aside voidable transactions to increase the value of the estate. For instance, a Trustee can rectify situations where the deceased sold property for less than the market value before passing away or made unlawful preferential payments.

Northern Territory Law

Alternatively, a bankrupt deceased estate can be administered according to the Administration and Probate Act 1958. These legislative provisions outline the:

  1. rights of both secured and unsecured creditors to the deceased’s estate;
  2. provable debts and liabilities against the deceased’s estate;
  3. valuation of future and contingent liabilities and annuities of the estate;
  4. priority of liabilities and debts of the deceased estate.

A Legal Personal Representative who retains control over the deceased estate follows the rules outlined in the Bankruptcy Act. The same rules apply as if a creditor’s petition was presented against a living debtor. If the petition is successful, the executor or administrator files a Statement of Affairs with the Australian Financial Security Authority within 28 days of being informed of the order.

The team at Go To Court Lawyers can help if you are an executor or administrator of a bankrupt deceased estate or a creditor intent on making a claim against the estate. Contact or call the team on 1300 636 846 for specialist advice tailored to your legal needs.


Michelle Makela

Michelle Makela is a Legal Practice Director at Go To Court Lawyers. She holds a Juris Doctor, a Bachelor of Science (Psychology) and a Master of Criminology. She was admitted to practice in 2006. Michelle has over 15 years experience in the legal industry, working across commercial litigation, criminal law, family law and estate planning. 

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