How Debts Are Paid in Probate

A common concern is what happens to a person’s debts after they die. The simple answer is: the estate is responsible for paying the debts, not the surviving family members (unless the surviving members were joint account holders).

1. Creditor Notification

• Public Notice: The Executor must usually publish a legal notice in a local newspaper announcing the person's death and notifying all potential creditors to file a claim.
• Direct Notice: Known creditors (e.g., credit card companies, mortgage lenders) must be contacted directly.
• Claims Period: State law dictates a mandatory period (often 3 to 6 months) during which creditors can submit claims.

2. Priority of Payment

Creditors are not paid equally. State probate laws establish an order of priority for payment:

1. Administrative Expenses: Costs related to settling the estate, such as funeral expenses, attorney fees, and Executor compensation. These are always paid first.
2. Taxes: State and federal taxes owed by the deceased.
3. Secured Debts: Debts tied to a specific asset, like a mortgage (secured by the house) or a car loan (secured by the vehicle).
4. Unsecured Debts: General debts like credit cards, medical bills, and personal loans.

3. Insufficient Funds (Insolvent Estate)

If the estate is insolvent (the debt owed is greater than the value of the probate assets), the Executor must pay debts strictly in the order of priority until the money runs out.

• Result: Unsecured creditors are often left unpaid. The surviving family members are not legally required to pay the deceased person’s unsecured debts from their own money.

Non-probate assets (like life insurance or retirement accounts) are generally protected from creditors and pass directly to the named beneficiaries.