Those seeking to collect money from an individual may feel concerned about their finances when a debtor dies. After all, someone who has died can no longer earn income to pay what they owe to others. Despite someone’s death effectively transferring their assets to their estate, their obligations do not just disappear.
Creditors still have certain rights under California state law, including the right to bring a claim against someone’s estate. If there are more than enough resources to pay all of someone’s debt, creditors can count on receiving what they deserve during the probate process. However, if someone dies with limited resources, only some of their creditors may receive full repayment. There is an order of priority established under California law dictating who receives funds first from an estate.
Estate administration costs
The cost of probate court and legal representation for the estate will be the top priority during the probate process. Such expenses will take priority over almost all other financial obligations.
Secured debts
Certain debts are easier to recover than others because they have property attached to them as collateral. Real estate financed with a mortgage is a perfect example. Secured debts are the second priority during California probate proceedings. Judgment liens are among those secured debts that require priority repayment.
Funeral expenses and medical costs
The third level of priority applies to funeral and burial costs incurred after someone’s death. Their end-of-life medical expenses will hold the fourth position of priority over many other creditors.
Family allowances
During probate proceedings, family members can ask for funds for their maintenance during estate administration. The surviving spouse and minor children of the decedent usually have the right to make a claim. Adult children with disabling medical conditions may also qualify if they were wholly or partially dependent on the decedent for financial support.
Wage claims
When someone is an employer and has an obligation to pay wages to others, those payroll obligations take priority over other general debts.
Personal financial obligations
After covering probate costs, secured debts, funeral expenses, medical bills and wage claims, general debts will be the final priority category for debts. These would include any judgments that did not involve a property lien, credit card balances and even student loans.
Creditors who understand the rules of debt priority for estate administration purposes may be in a better position to either demand repayment from an estate with limited resources in California or to save their energy given the low likelihood that their level of priority will receive any compensation from the deceased’s estate.