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Steps to Handle Debt and Liabilities During Probate

5 min read
Philip Ahn, Attorney

by Philip Ahn, Attorney

Probate can provide a sense of closure by tying up a loved one’s financial loose ends. Before getting to that point, executors need to handle the intricate web of debts and liabilities during the probate process.

The individual who assumes the executor or personal representative role assumes responsibility for debt and liability management in probate. Executors must carefully assess and manage the deceased person’s outstanding debts, ensuring creditors are paid off from the estate’s assets as legally required. Effective debt management during probate is crucial to then ensure the orderly distribution of assets to beneficiaries.

1. Identify and Notify Creditors

Rounding up all existing creditors is part of the probate process when a person dies. The surviving spouse or personal representative becomes responsible for handling debts and assets owed, in accordance with state laws and fair debt collection practices. This is particularly important in the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin).

The deceased person’s estate, including assets and remaining property, must be used to cover a range of common debts. This includes credit card debt, personal loans, and any student loans that are not discharged upon death. Managing mortgage payments or real estate dues after a homeowner’s demise, particularly in cases involving a surviving spouse, is particularly important for executors.

The executor must discuss outstanding debts with creditors and collectors, ensuring enough money is paid to satisfy the deceased person’s obligations. Failing to address these debts could leave surviving family members personally responsible for the unpaid debts, impacting their own pockets or inheritances.

How Long Do Creditors Have to Make Claims Against an Estate?

The timeline for creditors to claim debts against an estate will vary depending on the jurisdiction. For practical reasons, there will be a limited duration during which creditors can request an estate to pay its outstanding obligations (although some states may permit probate to be reopened if the executor does not follow proper procedure). This limit ensures the deceased’s estate is not stuck in limbo indefinitely, allowing all parties to move on in a structured and predictable way.

2. Inventory and Appraise the Deceased’s Estate

In probate, an “estate” is all of a deceased person’s financial and physical property (from coin collections to shares of joint holdings – not just their real estate). 

In the aftermath of a person’s passing, the inventory and valuation of their estate will lay a foundation for the rest of the probate process. 

Conducting a comprehensive evaluation ensures that the deceased’s estate will be manageable in a clear and defensible way under state probate laws. This helps administrators secure assets to meet the deceased’s debts (especially secured debts) and ensure fair distribution among estate beneficiaries.

3. Sell Assets to Cover a Deceased Person’s Debts

After a person’s passing, the responsible executor or administrator may need to sell assets from the estate to address the deceased person’s remaining debts. The priority will be to generate enough money, or at least as much money as possible, to cover the obligations.

Under the purview of state and federal tax regulations, debt collectors can work closely with the executor to ensure the proper distribution of funds, relieving the surviving family members from being personally responsible for these obligations.

Along with the executor, the county clerk or other responsible probate legal officer will play a vital role in accounting for an estate’s money, property, and debts.

Executors will make a final accounting of the remaining estate. Then they must distribute any funds that remain per the deceased person’s wishes. 

Disputes and Claim Resolution for the Deceased’s Estate

Not all creditor claims are equal, or even valid. Executors must affirm the truth of any claims made.

Surviving spouses and family members may find themselves legally responsible for paying off the debts the deceased owes, particularly for federal taxes. In community property states, debts incurred during marriage may need to be addressed.

Ultimately, it is crucial to be inquisitive about the estate’s finances to ensure that the money left behind is used to pay off appropriate debts; and that deceased relatives have limited liability.

Resolving Debt Disputes With Attorney Assistance

When faced with a debt issue, individuals often seek legal guidance to navigate the complexities of debt collection. Attorneys can help negotiate with creditors to establish a feasible plan to pay off the debt, ensuring that the estate’s resources are used effectively. 

Having generally done this before, attorneys will be well-versed in the limits of what creditors are able and willing to accept. They can provide valuable insights into the best strategies for managing debt or tax consequences while safeguarding the interests of the deceased’s family.

Where to Get Legal Help With Estate Debt in Probate

For most people, a probate attorney is pivotal for addressing a deceased person’s debt while settling their estate, especially when a co-signer or surviving spouse is involved.

The attorney assists in assessing the debt’s validity, negotiating with debt collectors if necessary, and devising strategies to ensure the estate can pay off the debt while safeguarding its overall financial health. This collaborative effort is essential in preventing the debt burden from affecting the beneficiaries and preserving the integrity of the deceased person’s economic legacy.

Unbundled Legal Help is connected to a nationwide network of independent, affordable, locally-licensed probate attorneys. In addition to full representation they also provide unbundled services, offering to help with specific narrowly-defined tasks. This helps executors control expenses by handling other tasks on their own.

Choosing unbundled legal services can be cost-efficient, with rates starting between $500 and $1,500. Retainers for full representation from non-unbundled attorneys can start between $3,000 and $5,000. Schedule a free consultation to discuss your probate case with a lawyer.

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