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Bankruptcy and Wills

Also known as: Bankrupt Testator, Bankruptcy Estate, Insolvent Beneficiary

Definition

Bankruptcy doesn't stop you making a will, but it affects what assets you can leave and means any inheritances you receive before discharge go to your creditors, not you.

Understanding how bankruptcy and wills interact helps you protect your family's future despite current financial difficulties and avoid costly legal mistakes.

What Does Bankruptcy and Wills Mean?

Bankruptcy affects wills in three distinct ways that people often confuse. First, you can legally make or update a will while bankrupt—bankruptcy is a financial status, not a legal incapacity. The Wills Act 1837 requires testamentary capacity (mental ability to understand what you're doing) and being 18 or older, not financial solvency. Your existing will remains completely valid if you go bankrupt, and you can create new wills during bankruptcy to protect your family's future.

Second, most of your current assets during bankruptcy belong to your trustee in bankruptcy (the person managing your financial affairs), not you. Your will mainly covers assets you acquire after discharge, which typically happens 12 months after your bankruptcy order under the Enterprise Act 2002. Emma, 38, was declared bankrupt in January 2025 after her online retail business collapsed with £45,000 in debts. She worried she couldn't make a will to protect her two children aged 8 and 10. Emma can legally make a will appointing her sister as guardian and executor. While her trustee controls most current assets—her house equity of £60,000, car worth £8,000, and £3,000 savings—her will sets out wishes for future assets and guardianship arrangements.

Third, any inheritance you receive before discharge goes to your trustee in bankruptcy to pay creditors. The critical date is when the person died, not when you receive the money. Under the Insolvency Act 1986 sections 306-307, property that "devolves upon" a bankrupt person vests in the trustee. James, 55, was declared bankrupt in March 2024 with £65,000 in debts. His father died in November 2024, leaving James £40,000. James won't be discharged until March 2025, but the estate won't distribute until June 2025 due to probate delays. Because his father died before James's discharge, the entire £40,000 vests in James's trustee, even though the money arrives three months after discharge. The trustee used £35,000 to pay creditors and returned the £5,000 surplus to James.

While technically possible in England and Wales for a bankrupt person to serve as executor, it's strongly inadvisable. David, 62, was named executor in his best friend Michael's will in 2019. David was declared bankrupt in 2023, owing £52,000. When Michael died in February 2024 leaving a £407,000 estate, David faced severe practical problems: he couldn't sell Michael's house because bankruptcy restricts large financial transactions, banks were reluctant to release estate funds, and the three beneficiaries worried about someone who couldn't manage his own finances handling their £135,000 inheritances each. David's solicitor advised him to renounce his executor role, and Michael's daughter Sarah successfully administered the estate without complications.

Common Questions

"Can I make a will if I'm currently bankrupt?" Yes, you can make a will while bankrupt. Bankruptcy doesn't prevent you from creating or updating your will, as the requirement is testamentary capacity (mental ability to understand what you're doing), not financial status. However, remember that most of your current assets belong to your trustee in bankruptcy, so your will primarily covers future assets acquired after discharge.

"What happens if I inherit money while I'm bankrupt?" Any inheritance you receive while bankrupt (before discharge) automatically goes to your trustee in bankruptcy to pay your creditors. The critical date is when the person died, not when you receive the money. If they died before you're discharged from bankruptcy, the inheritance goes to your trustee even if the estate takes years to distribute.

"Can a bankrupt person be named as executor in someone's will?" While technically possible in England and Wales, it's strongly inadvisable. A bankrupt executor faces practical difficulties managing estate assets, particularly selling property. Many beneficiaries would have concerns about someone currently unable to manage their own finances handling a deceased's estate. Most solicitors recommend choosing someone who isn't bankrupt as executor.

Common Misconceptions

Myth: If I go bankrupt, my will becomes invalid and I need to make a new one

Reality: Your existing will remains completely valid if you go bankrupt. Bankruptcy is a financial status, not a legal incapacity. The only requirement for a valid will is testamentary capacity (mental ability to understand what you're doing), not financial solvency. Your will continues to be your legally binding document regardless of bankruptcy.

Myth: If I inherit money after my bankruptcy ends, the Official Receiver can still claim it

Reality: Once you're discharged from bankruptcy (usually 12 months), any inheritances from deaths that occur after discharge are entirely yours. The critical date is when the person died, not when you receive the money. The Official Receiver and trustee in bankruptcy have no claim on inheritances from deaths after your discharge date.

  • Testator: A testator who is bankrupt can still make a valid will, but the assets they can distribute are limited to property acquired after discharge.
  • Executor: While technically permitted to serve as executor when bankrupt, practical difficulties managing estate assets and selling property make this strongly inadvisable.
  • Insolvent Estate: If a person dies while bankrupt, their estate is insolvent and must be administered under the Administration of Insolvent Estates Order 1986, with creditors paid before beneficiaries.
  • Debt: During bankruptcy, most assets including inheritances received before discharge are used to pay creditors in statutory priority order.
  • Liabilities: The estate's liabilities must be paid before any beneficiaries inherit, and any inheritance you receive during bankruptcy is used to settle liabilities.
  • Codicil: A bankrupt person can make a codicil to amend their existing will just as they can make a new will, with no financial status requirement.
  • Special Circumstances: Bankruptcy is a special circumstance that affects will-making and estate planning, requiring careful consideration of discharge timing and asset ownership.
  • What is a Will?
  • How to Make a Will
  • Special Circumstances in Will-Making: Positions bankruptcy as one of several special circumstances requiring tailored estate planning and additional legal considerations.
  • Debt and Your Estate: Explains how debts are handled in estates and how bankruptcy affects debt payment with creditor priorities and trustee roles.
  • Estate Planning During Financial Difficulties: Addresses estate planning during financial hardship, with bankruptcy providing specific guidance for those who've entered bankruptcy proceedings.

Need Help with Your Will?

Bankruptcy doesn't mean you've lost the right to protect your family's future. Understanding how your will works alongside bankruptcy helps you plan for assets you'll acquire after discharge and ensure your children are cared for if anything happens.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.