One of the tasks the executor of an estate must address is the outstanding debts of the deceased. Failing to do so could mean that the executor incurs personal liability for the debts.
If you serve as the executor of the estate of a loved one, you will need to deal with his or her creditors as part of the probate process. You should know up front that addressing debts is not as cut and dried as you might think.
Different creditors receive different treatment in Texas
People owe money to two different types of creditors — secured and unsecured. Secured debts have some form of collateral, or property, attached to them that guarantees them. Unsecured debts like credit cards and personal loans do not. Texas law does not require notice to unsecured creditors, but out of an abundance of caution, you should do it anyway. Unsecured creditors have four months to file a claim with the estate. Otherwise, that creditor may lose the right to payment.
Secured creditors receive different treatment, however. Within 30 days of your official appointment as executor, you must publish a notice in a county publication announcing your appointment. Within 60 days of that same date, you must send a registered or certified letter to any secured creditor, which could include a mortgage loan lender or an auto loan lender.
What happens if the estate’s assets don’t cover all debts?
It’s possible that your loved one owed more than she or he had in assets. In this case, debts receive attention in the following priority:
- Expenses relating to final illness or injury and funeral expenses not to exceed $15,000
- Expenses of managing the estate and estate administration
- Secured claims
- Child support arrearages
- Taxes or penalties owed to the state
- Claims for confinement in a Texas criminal justice system
- Reimbursement for Medicaid payments
- Unpaid taxes
- Unsecured or other debts
You may reject a creditor’s claim for payment, but that creditor could file a lawsuit against the estate, seeking payment. This may seem like an easy enough process, but in reality, it can quickly get complicated.
As is the case with all of your other duties as executor, you have the right to enlist whatever help you may need to perform your duties to the best of your ability, which includes consulting with an attorney. Considering the fact that you could end up facing personal liability for the debts of the deceased, you may want to take advantage of that right.