man worried about unpaid bills during probate

What Happens to Unpaid Bills and Creditors in a Probate Matter?

The California Probate Code sets out the rules about the payment of debts of decedents in Sections 11420 – 11429. If your close relative died recently, you might be wondering what happens to unpaid bills and creditors in a probate matter. A California probate attorney could handle the administration of the estate so that you do not have to deal with things like paying the estate debts and many other probate administration issues.

Priorities of Debts and Creditors

Debts with the highest priority will get paid before other debts. All of the debts of one priority class will get paid before any debts of a lower priority group. If there is not enough money to pay all the debts in an entire category in full, each creditor in that class will get paid a proportional share, unless a statute directs otherwise. This is the order of priority for the payment of debts of the decedent:

  1. Debts owed to the United States or the State of California get paid first.
  2. The reasonable expenses to administer the estate get paid next, even before debts the deceased person incurred during his lifetime. If there were costs to administer specific property that secured debts, the reasonable administration costs for that asset will get paid before the indebtedness the asset secures.
  3. If there is enough money remaining in the estate after paying categories 1 and 2, then the estate will sell the property secured by mortgages, deeds of trust, judgment liens, and other liens. Those obligations will get paid with the sales proceeds. If the proceeds are not enough to pay those debts in full, the unpaid portion will get classified as a general debt, #8, below.
  4. Funeral expenses get paid next.
  5. The medical bills and other reasonable expenses from the decedent’s last illness or injury are next in priority.
  6. If there is money remaining at this point, the estate administrator can pay a family allowance, as per the California Probate Code.
  7. Wage claims get paid after a family allowance.
  8. General debts of the decedent have the last priority for payment.

When the personal representative has gathered enough money to reserve for the administration costs and all of the items other than the general debts, the administrator should promptly pay the funeral expenses, medical bills and other expenses of the final illness, family allowance, and wage claims. Other than those four categories, the personal representative does not have to pay any debts from the estate assets until the probate court issues an order for the representative to do so.

Four months or more after the court issues letters of administration to the personal representative, the court can enter an order directing the personal representative to pay debts of the decedent. If there is not enough money in the estate to pay all creditors in full, the court order will stipulate the amount that each creditor will get paid. The personal representative gets discharged from responsibility by the court after making the ordered payments.

Administering a probate estate is complicated. Our state laws contain many regulations a personal representative must follow. If you get named as a personal representative, you do not have to do the tasks yourself. You can hire a California probate attorney to handle the administration of the estate. Contact us today.