In both probate and guardianship cases in Texas, litigation can arise very frequently when the Decedent or the incapacitated person owed someone money at the time of death or incapacity. When that happens, the creditor’s only avenue for pursing payment of the debt owed to them is to sue either the executor of the decedent’s estate or the guardian of the estate of the incapacitated person.

Example: At the time of D’s death, he owned a home valued at $100,000.00, but the home had a mortgage of $55,000.00 still owed at D’s death. Additionally, D had funeral bills of $10,000.00, medical expenses related to his final illness of $15,000.00, and he owed $25,000.00 in credit card bills. In total, his debts of $105,000.00 exceeded the value of his sole asset—the house.

Who is liable for the debts?

Invariably, family members of a Decedent who died leaving significant debts are concerned that they may be liable for those debts if the assets of the Decedent will not cover his debts. However, the Probate Code specifically states that the debts of a Decedent (or incapacitated person) are paid out of the assets belonging to that person—not by his family members.

Payment of debts when estate is insolvent.

In the example above, D’s estate is insolvent, meaning that his debts exceed his assets. As a result, not enough money exists to pay all of the debts.

In cases like this, the Probate Code lays out a procedure for determining which debts get paid first, and then ultimately, the Code also lays out a procedure for paying the debts proportionally between the various creditors. It is important to note that funeral bills and the costs of administering the estate (attorneys’ fees, accountants’ fees, etc.) are generally paid before any of the creditors are paid. This will help anyone considering becoming an executor to know that the costs of them doing so will be paid before the other creditors are paid.

Approving or Denying Claims.

When a creditor is owed money from an estate, it is generally necessary for them to file a “Claim” against the estate, detailing the amount of the debt and how the debt arose. For instance, in the example above, each of the credit card companies to whom D owed a debt would file a claim with the Executor of D’s estate providing a list of the amounts owed.

Once the executor receives the Claim, he/she must either approve or deny the claim. If denied, the creditor must file suit against the executor if he wants to pursue payment of the claim from the Estate. In a dependent probate administration, the process related to filing claims and filing suit on denied claims is very tricky. In many cases, unknowing creditors fail to follow the procedure in the Probate Code and end up having their Claims barred.

In today’s society where people live on their credit cards, the number of claims filed by credit cards in each estate has increased dramatically in the last few years. However, many of these credit card companies do not fully understand the Texas laws related to pursuing their claims. In the vast number of cases, these credit card companies end up losing their claims simply because they do not know how to pursue them correctly.

Inasmuch as creditors’ claims arise in the vast majority of probate and guardianship cases, executors and guardians need to receive competent advice as to the proper method handling such claims. Likewise, they need proper advice related to lawsuits filed as a result of these Claims. The attorneys at Ford+Bergner LLP work with these issues on a regular basis and will be glad to assist you if you are facing these issues.