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What happens to debts during probate?

You may be one of the many in Arizona named to handle the administrative matters related to a deceased loved one's estate. If the court appointed you, it is likely because your loved one did not create an estate plan. This may mean you have a lot of work ahead of you as you see your loved one's estate through the process of probate.

Probate is a necessary legal process for estates that do not have trusts or other alternate plans in place. The purpose is to tie up the loose ends of your loved one's material life, distribute the remaining assets and close the estate. One important loose end you will be dealing with is the debt your loved one left behind.

Collecting your loved one's debts

The funds to cover any outstanding debts will come from the estate itself. Your job as the estate administrator will be to gather information about your loved one's creditors. Unless your loved one had a good system of organization, you may have to dig around for information about the following:

  • Utility bills and cell phone charges
  • Mortgage payments or rent
  • Condo or HOA fees
  • Loans, including auto, personal, student loans and loans taken against insurance or retirement accounts
  • Fees for storage units
  • Credit card bills

The government typically gets its share first, so you may have to complete your loved one's final income tax returns and figure out whether the estate qualifies for federal estate taxes.

How do I pay all this?

Some of the bills on your list you may be able to pay off and cancel, but others you may need to continue paying throughout probate, such as utilities, mortgage and storage. You may also hear from creditors who claim your loved one owed money, and you will be responsible for validating those claims before paying.

If your loved one doesn't have enough cash to pay for all the outstanding debt, you may have to petition the court to sell some of the estate's assets, for example, selling the car to pay the car loan or cashing in stocks to pay off credit cards. Of course, if you have little experience with complex probate matters, you always have the option to seek legal assistance. An estate planning and probate attorney will have the experience to handle all aspects of your loved one's probate.

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