Many people die without leaving a massive estate, either by accident or by design. Some, however, die deeply in debt, leaving their loved ones uncertain how to proceed and concerned about what their obligations might be.
Generally speaking, debts don’t disappear when someone dies. Instead, the estate is required to pay any legitimate creditor claims before distributing any remaining assets. If the estate has enough to cover them all, that will likely resolve any issues. If it doesn’t, however, the executor or administrator must carefully take stock of the creditor claims and determine which debts must be paid first.
The law determines who gets paid
When there isn’t enough money in an estate to cover everything, Pennsylvania law (20 Pa.C.S. § 3392) says that the following bills must be paid in this order, subject to any preference given by law to claims due the United States:
- Estate administration expenses: These include costs associated with settling the estate, including reasonable executor and attorney fees.
- Family exemption: A statutory inheritance of $3500 may be due to certain surviving family members.
- Final expenses and funeral costs: Funeral and burial costs, along with certain qualifying medical, nursing, hospital, medical assistance, and associated services incurred during the final six months of life, along with wages of the decedent’s employees.
- A grave marker: The cost of a headstone or other grave marker comes next (but after other reasonable, associated expenses).
- Unpaid residential rent: If the deceased had unpaid rent for their residence, payment must be made for the six months immediately preceding their death.
- State and local government claims: Debts owed to the state or local government must be paid next.
- Other debts: This includes any valid remaining claims, including credit card bills, personal loans, car payments, and utility and other bills.
Valid liens and secured debts may also need to be addressed via different rules. Some creditors may ultimately receive everything they are due, while others of lower priority, and ultimately the heirs, may receive nothing at all.
Because this can be a difficult process to get right, it is always wise to have experienced legal guidance during estate administration. Contact our office today to learn more.