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How Are Debts Handled After Someone Dies?

Probate is the legal process used to settle the debts of a deceased person in Texas. When a person dies, probate is the process that the courts use to acknowledge their death, settle any outstanding debts they may have, and transfer any leftover assets to their heirs.  Probate has been established for the sake of speeding up the transfer of a deceased person’s estate, as well as protecting both the interests of the person’s beneficiaries and creditors. Probate cases are handled by the Texas Probate Courts.

Under the probate process, creditors are informed of the person’s death. A notice to creditors must be given as part of the legal requirements of the probate process, which gives creditors a chance to submit a claim against the estate. A notice in a local newspaper is sufficient notice to creditors as under Texas law. It is the responsibility of the executor, administrator, or Personal Representative (“PR”) of the estate to pay off creditors using assets from the estate.

Who Is An Executor?

The executor, often referred to as an administrator or PR, is the person who manages the deceased’s assets. If the deceased leaves a will, the will would designate the executor they wanted to be in charge of the estate. The court will appoint an executor if there is no will or if the deceased failed to name one. The executor gets compensated fairly for their time and effort in handling the deceased’s inheritance.

The responsibilities of the executor include the following:

  • Recognizing and valuing the assets of the estate
  • Taking care of the estate’s debts
  • Recovery of the estate’s debts owed
  • Distribution of assets to the beneficiaries

The probate courts in Texas do not have a lot of control over the actions of the executors of an estate. Most of the time, this is beneficial for those who inherit from the estate. It indicates that the probate process will be quick and less expensive. There is a big drawback to this, however. The lack of oversight means an incompetent executor might easily abuse their position.

Even if you are not the appointed PR of an estate, it’s a good idea to familiarize yourself with Texas probate laws and the process for dealing with creditor claims.

What Are Creditor Claims?

A creditor claim in Texas is a claim by a person or entity to whom a deceased person or business owes money. Claims are of two distinct types:

  • they may be unsecured, like certain personal loans, or
  • secured like mortgages or tax liens.

According to Texas law, creditor claims are prioritized in the following order:

  1. The deceased person’s hospital and funeral expenses up to $15,000.
  2. Costs associated with the estate’s administration.
  3. Secured claims, such as tax liens.
  4. Child support arrearage.
  5. Taxes owed.
  6. Costs of incarceration.
  7. Reimbursement of medical aid payments by the State.
  8. All other claims.

For a PR to pay an accepted claim out of estate assets without the risk of personal responsibility, the claim must be approved and not barred. The PR must ensure there are sufficient assets in the estate to meet the claim’s payment obligations.

How Is Community Property Handled During Probate?

A deceased person’s estate in Texas has to be handled quite differently if they were married due to the concept of community property. Assets brought into a marriage by any sources besides inheritance or gift are referred to as community property. The PR must distinguish between what belongs to each individual and the community property. The separate property of the deceased can be liquidated outright to fulfil the creditor claims. However, when it comes to community property, there are some exempted properties that cannot be liquidated by the PR. For example, the primary residence is subject to the exemption. “Special” community property is also exempt, and these can include properties such as vehicles that were bought during the marriage but are titled in the name of only one spouse.

How Are Credit Card Debts Handled?

Credit card debt must be repaid by the spouse of the deceased if they: co-signed for the credit card, owned property or a company jointly, reside in a community property state, or are obligated by state law to pay the debt, such as medical costs.

In Texas, the debt must be paid by the spouse since it is a community property state. As long as the estate executor can handle the debts, the relative will not have to pay this obligation personally out of their own funds. The executor may pay down the credit card debt as with other obligations, such as a mortgage or a car loan. In certain rare cases, probate lawyers can negotiate with credit card issuers to eliminate the debt entirely.

How Are Student Loan Debts Handled?

The laws governing how student loans are handled differ depending on whether the loans are private or government. All of the decedent’s federal student loans, including Federal Direct Subsidized Loans, Unsubsidized Direct Loans, Direct Consolidation Loans, Student PLUS Loans for graduate and professional students, and Perkins Loans are discharged or forgiven.

In the case of Parent Plus Loans, three different instances of discharge apply:

  • The loan is discharged after the death of the student.
  • The loan is discharged if the parent responsible for repayment dies.
  • The loan is discharged if it is in the name of both parents, and the second parent dies.

In the case of private loans availed by the deceased, the cosigner of a private student loan may be held accountable for the debt’s payments. Private lenders’ regulations on borrowers’ debt after death vary widely.

Handle Your Loved One’s Debts and Close Their Estate With Our Help

At Oxner Legha Law Firm, with the help of our probate lawyers, we will simplify and alleviate the burden of this complicated probate process . We understand the immense weight of duty you’re carrying. Call us today at (346) 327-9500 or contact us here.

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Jason Oxner

Jason is licensed in the State of Texas and is a member of the State Bar’s Health Law Section, Real Estate and Probate Section, and Business Law Section. More about Jason Oxner.

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