Paying the Decedent’s Debts in Texas Probates
Having posted notice of the probate, the personal representative has to wait to see what creditors present claims. Most probates have claims submitted, even if it is just the decedent’s credit card company that submits a claim.
Liability for the Decedent’s Debts
A claim is a liability that survives the decedent’s death. This may include debts that arose during the decedent’s lifetime, funeral and last expenses, and taxes.
The personal representative generally should not pay the decedent’s debts without first posting notice and then waiting for a claim to be presented.
Paying Claims After Presentment
The process for paying claims differs depending on whether the probate is being handled as a dependent or independent probate.
With dependent administration, most claims for payment have to be formally presented to the personal representative. There are a number of exceptions to this requirement of formal presentment, including Federal and local property taxes, personally guaranteed debts, etc. Other claims are presented by filing suit against the estate.
With independent administration, claims do not have to be formally presented. Providing notice of the claim to the personal representative is sufficient.
Time Limit for Submitting Creditor Claims
There are time limits for submitting claims for payment. This time limit generally starts when the personal representative is appointed.
The length of the time limit for a claim depends on whether the underlying debt is secured or unsecured and whether notice was provided.
Unsecured creditors who receive notice from the personal representative generally have 120 days after receiving the claim to present their claim. Secured creditors have until the later of 6 months from the appointment of the personal representative or 4 months after the creditor receives notice from the personal representative. Secured creditors who do not file their claim within this time retain their claim, but the claim can only be satisfied by the property secured by their debt.
Claims submitted after these time limits are barred. This bar only prevents the creditor from suing the estate, not the personal representative, beneficiaries, etc.
Approving Valid Claims
The personal representative generally has to allow, reject, or object to a creditor’s claim.
As a general rule, personal representatives are to allow timely-filed claims for debts that are owed if there are sufficient assets to satisfy all of the estate’s debts. This general rule does not apply to claims where offsets are owed by the creditor to the decedent, but the offset is not listed as a net amount in the claim.
Even if the claim is valid, the balances should be negotiated down. Unsecured creditors will typically accept modest payments in satisfaction of probate debts.
Paying Valid Creditor Claims
There is no set time for payment of claims. It is the personal representative’s duty to pay claims against the estate as speedily as possible, consistent with the rights and interests of all parties.
With dependent administrations, the personal representative of an estate should not pay a claim for money against the estate unless the claim has been approved by the court or established by judgment. The personal representative’s decision is recorded in a memorandum filed with the probate court and if no contest is made to the decision within 90 days, the claim can be paid once approved by the court.
The personal representative has more leeway with independent administrations. For independent administrations, the personal representative can pay claims in their discretion. The personal representative will generally do so once he or she is comfortable that all claims have been received.
Priority of Paying Creditor Claims
Texas law provides a list or order that claims are to be paid. These rules are particularly important when there are debts in excess of the assets available to pay the claims.
- Federal tax liabilities
- Class 1 – funeral and last expenses
- Family allowance
- Class 2 – administration expenses
- Class 3 – matured secured claims
- Class 4 – child support
- Class 5 – state taxes
- Class 6 – incarceration costs
- Class 7 – medical assistance payments, i.e., Medicaid
- Class 8 – other claims
Claims within the same class are paid pro rata if there are not sufficient assets to pay all of the claims in the class.
Claims may also be rejected if the estate does not have assets that can be used to satisfy the claims. The probate process can provide finality for these insolvent estates.
Rejecting Time Barred and Other Claims
Claims can be rejected in writing or by failing to act on the claim timely.
When a personal representative fails to act on a claim within 30 days, it is deemed to be rejected. The creditor’s remedy is then to file a complaint in the probate court to challenge the denial.
Absent an insolvent estate, the personal representative has to be careful to not reject a valid claim. The personal representative may be held personally liable for the legal costs incurred to collect the claim and/or removed for failing to properly administer the estate.
Help With Paying Creditor Claims in Texas Probates
We are probate attorneys in Houston, Texas and we help clients navigate the probate process. If you have a question about paying creditor claims, we would like to hear from you.
Call today, (281) 219-9090 .