What is an Insolvent Estate? (Part 2)

In this week’s blog post, I continue a discussion of insolvent estates.  An insolvent estate is one in which there are not enough assets to cover all of an estate’s debts. The personal representative can’t, however, simply pay the bills as they come in.  That’s because New Jersey probate law determines in what order they are to be paid.

At the top of the priority list are the expenses of the decedent’s funeral.  Next in line are expenses of estate administration.  This includes Surrogate filing fees, the personal representative’s commission and estate administration legal fees.  If there is anything left after these payments, then the Office of Public Guardian bills if any are paid and following that debts and taxes with preference under federal or state laws are next.

The next bills to be paid after taxes are medical and hospital expenses of decedent’s last illness.  Following that are any creditors that obtained judgments against the decedent.  At the bottom of the list are all other claims into which would fall credit cards and other outstanding bills of the decedent, such as unpaid utility bills, repair bills, etc.

Now that we have an understanding of the order of priority, the personal representative is tasked with using the funds to pay the creditors in that order.  For example, funeral expenses are paid first.  If there are assets remaining after that, the representative then moves on to pay the creditors in the next category and so on and so forth.  

Eventually, the personal representative gets to a category in which there is not enough money to pay all the creditors in that category.  So what happens in that instance?  I’ll cover that next week.