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Probate & the Insolvent Estate


When most people think of estate administration, they reference a decedent’s will and testament, personal property, land, and furnishings. Other assets include intellectual property, bank accounts, investment accounts and other items of monetary value belonging to a decedent. Unfortunately, not all loved ones pass away with assets to bequeath to loved ones. In fact, sometimes a loved one passes away owing debt to creditors. So, what happens to an estate that is insolvent? How does a relative or personal representative close the estate of a loved one that owes a significant debt? Is the debt dissolved upon the decedent’s death?

Defining “Insolvent”

Insolvent means unable to pay one’s debts.  An insolvent estate is an estate in which the decedent owes more debt than the total value of their estate. There may be insufficient assets to cover the cost of court fees involved with opening the probate account. In addition, there may not be funds to cover funeral expenses or prior debt owed to creditors. This can present a serious issue to the decedent’s loved ones and next of kin. If there is a dispute about a debt owed by the decedent, it is possible that the matter could be settled in court.

Creditor Probate Claims

Usually, a decedent will name a personal representative in their will or estate instructions. Otherwise, a family member may assume the role, an attorney can act as a personal representative, or the court will assign one. The personal representative is responsible for winding up the estate’s affairs, or they can hire a reputable trusts and estates attorney to handle the probate process. This includes notifying all creditors of the decedent’s passing. A direct notification to the estate’s creditors starts a thirty day deadline for the creditor to file a claim. If the personal representative is not sure what the decedent owed, or to whom, they should file a “Notice  to Creditors” in local newspapers or online notifying the public and potential creditors of the decedent’s death. Fla. Stat. § 733.2121 (2017).   In Florida, once a Notice to Creditors is published, a potential creditor has three months from the date of the notice to file a claim against the decedent’s estate. Without a published notification, the period to open a claim is extended to two years. It is in the estate and personal representative’s best interest to file a notice, allowing the estate to be closed expediently. Death does not discharge debt, but unsecured debt may go unpaid if a creditor does not file a claim against the estate.

How are a Decedent’s Debts Paid Off?

Any gifts that the decedent may have set aside from funds in the estate are deducted to pay off debts. No distributions from the estate are made to beneficiaries until the account is solvent. When there are not enough funds to pay all remaining debts, creditors are then paid based on whether the debt is secured or unsecured, and in the order they filed a claim. If the decedent owed back taxes or other fees to the  State of Florida, that debt is first satisfied. Debt is secured if the creditor has filed a security interest in the debt to perfect their interest. An example of secured debt is a car loan. The creditor has a security interest in the vehicle. If the car owner stops making payments towards the loan, the creditor can exercise their right to make the entire amount owed due at once, or they can repossess the vehicle. An example of unsecured debt is credit card debt. Credit card companies  do not have a perfected security interest in a decedent’s credit card debt, and therefore, a credit card company would be one of the last creditors paid out of an insolvent estate, usually in the order that a probate claim was filed.

Call Our Tampa Probate Attorneys at Bubley & Bubley, P.A. Today

The probate process can be confusing and convoluted. There are dates, deadlines and numerous documents that must be filed in order to open and close an estate, which is only further complicated if an estate is insolvent. Our Tampa probate attorneys at Bubley & Bubley, P.A. can assist you today. Call us for a consultation.


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