When someone dies, whatever property they own becomes the property of their estate. Their financial obligations also pass to their estate. The personal representative named in an estate plan or appointed by the courts has to fulfill the decedent’s financial obligations.
The law requires that they communicate with known creditors and publish notice to advise unknown creditors of probate proceedings. They also have to prioritize the payment of most financial obligations ahead of the inheritance rights of any beneficiaries or heirs.
Unfortunately, some creditors do not receive appropriate notice about estate administration. Even those who do may not receive repayment from the estate as they should. What options does a creditor have if the personal representative of an estate does not pay the debts owed by the deceased individual?
The representative may have personal liability
Typically, other people do not have direct liability for the debt owed by a deceased individual unless they are a cosigner for the debt. Parents who co-sign for student loans may be liable for the balance owed if their child passes away unexpectedly without paying their debt in full. A surviving spouse may have to pay the remaining balance on a joint account that they opened during the marriage.
The personal representative of an estate is not automatically responsible for the debts owed by the decedent. However, mistakes that they make during estate administration may open them up to personal liability. If the estate had adequate resources to repay creditors but the representative failed to make those payments, creditors could potentially hold them personally accountable.
The representative may have to either recover assets they already distributed or personally pay for debts based on the value of assets that they distributed inappropriately. If they liquidated the decedent’s home and transferred the proceeds of the sale to their family members, creditors could use that activity as proof that there were resources to cover the debt owed to them.
Ideally, personal representatives follow the right process. They pay creditors in the proper order of priority and ensure they handle all creditor claims before they distribute resources to heirs or beneficiaries. If they fail to do so, the creditors who did not receive payment in accordance with state law may have grounds to take legal action. Initiating probate litigation over unpaid debts can potentially help creditors to limit their losses when someone who owes them money dies.