When a person prepares a Will, they (the testator) can say that they want the debts on their property to follow that property. For example, if the testator has a debt on their truck and they’re going to leave their truck to Junior, they can state in their Will that the debt goes with the truck; in other words, if Junior takes the truck he also takes the responsibility for paying the remaining debt on it. If there is no Will (an intestate estate), then the legislature has set out a way by which a deceased person’s debts are paid. In a probate proceeding in an intestate estate, outstanding debts are subject to the claims process as set out in the Texas Estates Code with the priorities of bills categorized as one through eight. Number one on the list of claims includes bills associated with the deceased person’s death, such last illness medical bills and funeral expenses. As you go down the list, priorities two, three, and four include the administrative cost of the estate and child support that might have been outstanding. And as you get down to number eight on the list, those are unsecured creditors, like credit card companies.
If the testator has basically a bankrupt or insolvent estate, that can result in a kind of mini-bankruptcy because as the estate pays the bills in order of priority, if the estate runs out of money, then five, six, seven, and eight on the priority list, for example, do not get paid. So, there’s a very specific method by which the debts of an estate are paid. There are also notice requirements–ways of giving creditors notice, which basically puts creditors in a position of having to do certain things or their claims can be barred. If debts are barred, that means the debts are not required to be paid, which can save the estate some money.
Secured creditors, on the other hand, such as mortgage holders on a house or automobile loans are different–they have what is called a secured interest–the real property or the automobile that they have made the loan for is held as the “security” for that loan. These secured debts are not subject to the priority chart in the Estate Code because, since they are secured by the property on which the loan was made, if they don’t get paid, they have the right to foreclose on the house or repossess the car.
If you have questions about debts in a probate or estate matter, Contact David Bouschor today at (940) 323-1300.
This video is part of a series on Wills and Probate. Click the links below to view more videos in this series.