What Happens When A Creditor Makes A Claim On An Estate?
Probate litigation can arise frequently as a result of debts that the deceased person may have owed at the time of their death. The examples of debts that could be owed at death are endless, but they might involve credit cards, utilities, mortgages, car loans, personal loans, taxes, and so many more. When such a debt exists, the creditor’s only avenue for pursuing payment of the debt owed to them is to seek payment from the Decedent’s estate. In many cases, if the payment of the debt cannot be easily resolved between the creditor and the estate’s executor, then the creditor must file suit against the estate to secure the claim.
Example: At the time of D’s death, he owned a home valued at $100,000, but the home had a mortgage of $55,000.00 still owed at D’s death. Additionally, D had funeral bills of $10,000, medical expenses related to his final illness of $15,000, and he owed $25,000 in credit card bills. In total, his debts of $105,000.00 exceeded the value of his sole asset—the house.
Who is liable for the debts?
Invariably, family members of a Decedent who died leaving significant debts are concerned that they may be liable for those debts if the assets of the Decedent will not cover his debts. However, the Estates Code specifically states that the debts of a Decedent are paid out of the assets belonging to that person—not from assets belonging to his family members.
Payment Of Debts When Estate Is Insolvent
In the example above, D’s estate is insolvent, meaning that his debts are more than his assets. As a result, not enough money exists to pay all of the debts.
In cases like this, the Estates Code lays out a procedure for determining which debts get paid first, and then ultimately, the Code also lays out a procedure for paying the debts proportionally between the various creditors if not enough money exists to pay everyone. It is important to note that funeral bills and the costs of administering the estate (attorneys’ fees, accountants’ fees, etc.) are generally paid before any of the creditors are paid. This will help anyone considering becoming an executor to know that the costs of them doing so will be paid before the other creditors are paid.
The Process For Filing A Creditor’s Claim
When a creditor is owed money from an estate, they must generally file a “Claim” against the estate, detailing the amount of the debt and how the debt arose. For instance, in the example above, each of the credit card companies to whom D owed a debt would file a claim with the Executor of D’s estate providing a list of the amounts owed.
Once the executor receives the claim, they must either approve or deny the claim. If denied, the creditor must file suit against the executor if they want to pursue payment of the claim from the estate. In a dependent probate administration, the process related to filing claims and filing suit on denied claims is very tricky. In many cases, unknowing creditors fail to follow the procedure in the Estates Code and end up having their claims barred.
In today’s society where people live on their credit cards, the number of claims filed by credit cards in each estate has increased dramatically in the last few years. However, many of these credit card companies do not fully understand the Texas laws related to pursuing their claims. In the vast number of cases, these credit card companies end up losing their claims simply because they do not know how to pursue them correctly.
Inasmuch as creditors’ claims arise in the vast majority of probate cases, executors need to receive competent advice as to the proper method handling such claims. Likewise, they need proper advice related to lawsuits filed as a result of these Claims. The attorneys at 713-352-0937 work with these issues on a regular basis and will be glad to assist you if you are facing these issues.