Treatment of Creditor Claims in Probate

There are often time limits involved in these procedures which may not be discussed below.  Therefore, it is important to get a probate attorney to give you proper advice on handling creditor claims.

Probate creditor claims are generally handled by Section 355.102 of the Texas Estates Code.  Claims and are typically paid in full, but by class, until the property of the estate is exhausted.  Creditor claim classes are roughly provided in the following order:  First, funeral expenses and expenses of the decedent’s last illness; Second, expenses of administration of the probate estate, including expenses incurred in preserving estate property; Third, secured claims by which an election has been made to pay as a matured secured claim; Fourth, delinquent child support; Fifth, unpaid child support; Sixth, taxes and tax penalties; Seventh, any other claim for money.  If the estate runs out of money prior to the payment of all such claims, then those claims of lower priority simply must do without.

SECURED CLAIMS

As secured claim is a claim in which the creditor has a right, in some form or fashion, to recover, foreclose, or repossess the collateral.  Typically, car loans, home mortgages, tax liens, etc., are examples of secured claims.  When a secured creditor as a claim, then  it must indicate whether it wishes to have such claim treated as a “matured, secured debt,” or, alternatively, as a “preferred secured debt.”  If the election is made to be paid as a matured secured debt, then all estate property (not just the collateral) may be used to pay such claim, but there is no longer a right to foreclose or to repossess.  On the other hand, if a preferred debt is elected (a preferred debt is the default option, where no election is made), then only the collateral itself may be used to satisfy the creditor’s claim.  With a preferred claim, the creditor maintains its right to foreclose on the property.

There are options, such as family allowances, etc., which affect how claims may be satisfied from estate property.