My Loved One Passed Away, and I’m Receiving Letters from Creditors. What Do I Do?
The question of how to handle the debts of a deceased loved one is tricky for several reasons. For one, misunderstandings and misinformation have led many to fear personal liability if their loved one’s bills go unpaid after their death. Even without that fear, some see the payment of such bills as a moral obligation that reflects upon their family and loved one’s legacy. Lastly, the tedious legal process for validating and honoring a deceased’s debts can overwhelm even the most meticulous of family and personal representatives. Whatever the source of apprehension, you are always better off handling the debts of a deceased individual with the help of a knowledgeable probate attorney.
When someone dies, it is often before probate starts, or an attorney has even been consulted, that the “sorry for your loss, but…” letters start showing up from creditors. Whether a family member is tempted to pay such bills through guilt, fear, or frustration, I highly recommend holding off on payment until probate has been initiated, an estate administration has been opened, and a personal representative has been appointed. Not only are you not required to pay those bills, but an estate’s debts can be characterized by a specific order of importance. The payment of certain debts early on may become an issue later if money in the estate becomes tight and higher priority debts come calling.
Even once the estate administration has been established, the payment of debt claims should be done subject to the laws of the Texas Estates Code and pursuant to a carefully crafted legal strategy. First of all, every personal representative of a Texas Estate is required to publish a general notice to creditors in a newspaper of general circulation in the probate county within one month of appointment. TEX §308.051, § 403.051(a). If such newspaper does not exist in the probate county, then a public posting will suffice. Proof of such notice must be shown in the form of an affidavit filed with the Court. TEC § 308.052.
After the general notice has been published, attention should be turned to all known individual creditors. These creditors are defined as either secured (debt backed by collateral like real property or a vehicle) or unsecured (general debt not tied to collateral assets). Within 2 months after appointment, a personal representative must give notice of such appointment to every person known by the representative to have a secured claim against the estate. TEC § 308.053(a). That notice must be in the form of certified or registered mail, and the return of said mail must be filed with an affidavit of notice in the Probate Court. TEC § 308.053(d). A personal representative may, but is not required, to deliver notice to an unsecured creditor by certified or registered mail. TEC § 403.051(a)(2). While it may seem tempting to conveniently forget about unsecured creditors, the following discussion shows that it may be a good idea to send the optional notice.
Even after the notices are sent, it is far from certain what debts will be deemed payable by the estate, and how. After secured creditors receive notice from the representative, they must, within six months after the date letters testamentary are issued, or within four months after the date the notice is received (whichever is later), make an important election regarding their claim. They must send a follow-up notice in which they designate their claim as either a matured secured claim, payable by any means available in the estate, or a “preferred debt and lien against specific property”. TEC § 355.151(a). Under that election, the preferred debt is only payable subject to the terms of the original contract securing the debt. For example, if the original contract was for payments on a car, the debtor shall either continue receiving car payments, or they must repossess the car. If they fail to make such election in time, their claim automatically becomes a preferred debt. TEC § 355.152(b). This default classification can be helpful to the estate if the collateral property is less of a priority than other, more liquid assets.
For unsecured creditors, the time and notice requirements of the Estates Code are even more important, as they determine if the claim is valid at all. In a dependent administration, the dependent administrator shall not allow, and the Court shall not approve, a claim for money against the estate, unless an affidavit supports such claims showing that the claim is just and that all legal offsets, payments, and credits known to the affiant have been allowed. TEC § 355.059; 355.004(a). If the permissive notice was sent, the creditor must respond by certified mail within 121 days of the notice. TEC § 308.054. Independent administrations are similar, except that the creditor can also respond by filing a lawsuit or filing a notice into the probate court. TC 403.056. In either situation, it is important to understand that many creditors do not observe the nuanced rules of the Estates Code and send notices by regular mail only. If you are working with a knowledgeable attorney, you may be able to deny many claims for noncompliance, thus saving the estate some serious money.
Even after all claims from secured and unsecured creditors are received and carefully scrutinized, the estate still should not start making payments quit yet. All the preceding requirements simply get the claims a seat at the table, so to speak. The personal representative can still contest the underlying debt itself, either through an objection to the form of the claim, or through an outright rejection of the claim as unfounded. Further, there are important expenses that carry priority over both secured and unsecured debts. Two examples are expenses associated with funeral and last illness costs not exceeding $15,000, and expenses of administration (eg legal fees). TEC § 355.102. Lastly, there are even scenarios where a deceased’s surviving spouse or children can claim an allowance from the estate that holds priority over creditors.
These are just a few of the most important laws governing what claims are required to be paid, and when, out of the estate. They are quite extensive, and often must be viewed collectively in light of all the estate’s obligations. Regardless of the situation, it is almost never a good idea to simply start paying bills of a deceased loved one as they start rolling in. By consulting a knowledgeable probate attorney, you can prioritize the deceased’s debts and potentially save more of your loved one’s hard earned money for his or her family or heirs.