Does the executor have to pay an estate’s debts?

Your parents recently died and you are the one taking charge of settling out their estate. What you quickly find is that your parents died with more debt than you’d expected. Maybe they still had outstanding business loans or they still owed a significant amount of money on their mortgage. Perhaps they just had much more credit card debt than you ever imagined. Or maybe they didn’t file their taxes for the last 5 years of their lives.

Many people in this situation become concerned that they will be responsible for their parents’ debts – especially if there is insufficient cash in the estate.

You have to pay the debt out of the estate

However, as estate administrator, it is your job to handle the estate debt. But you should never have to pay those debts out of your personal finances. What you will do is use the estate assets to pay off the debts to the best of your ability.

In many cases there is a house, which can be sold to pay debts. But if you prefer to keep the house, there are specialized lenders who can loan money to an estate, secured by the estate real property. The loan would then be converted to a mortgage after the probate process is completed and the beneficiaries will own the house, along with the mortgage.

If this process gets complicated, be sure you understand your legal options thoroughly.

Handling creditors in the probate process

There is a process for creditors to file creditors’ claims during the probate process. The executor must notify all “reasonably ascertainable” creditors and notify them of the probate process. The creditors then have a limited time to file their creditor’s claim with the court and the executor. If a creditor is notified and they miss the deadline, the executor does not have to pay their creditor’s claim. If an executor reviews a creditor’s claim and feels that not all the debt is justified, the executor can reject all or part of the creditor’s claim. It would then be up to the creditor to petition the court for their claim to be paid.

Many times creditors will take a reduced amount of debt repayment. This is where an experienced probate attorney can be helpful.

It is the executor’s responsibility to manage the estate’s debt, but it is not the executor’s responsibility to pay that debt out of pocket — even if there is less money in the estate than there is debt.