When a person dies, his or her relatives often rush to pay that person’s credit cards and other bills.
Bad idea.
In some circumstances, a bill may never have to be paid.
We’ll briefly explain how creditor claims work in the world of probate and then discuss an actual court decision.
Independent Administration vs. Dependent Administration
Texas has an extraordinarily easy type of probate called independent administration, which is used for most probate estates.
In an independent administration, the administrator (or “executor” if there was a will) acts without court supervision to settle the probate estate, including paying creditor claims and distributing estate property.
There is another type of probate called dependent administration. It requires that the administrator obtain court permission before paying claims and making distributions.
Dependent administrations are not usually favored because they invariably last longer and cost more.
How Probate Debts Are Handled
Now let’s discuss debts. The probate estate remains liable for the decedent’s debts. However, the creditor must go through a “claims” process before the estate is obligated to pay.
If the creditor fumbles the process, then an otherwise valid and collectible debt may be barred.
The claims process is different for independent and dependent estates: in a dependent estate, it is more complicated and subject to strict time periods.
When Probate Strategy Matters
Here is where an administrator’s probate strategy pays off.
If someone dies with a lot of debt, then it may be smarter for the administrator to choose a dependent administration and hope the creditors mess up the claims process.
Now, for our case.
The Case: A Homebuilder’s $101,000 Claim
Bob contracted with a homebuilder to design and construct a home in Texas.
The homebuilder asserted that it presented a draw request to Bob and demanded payment. Bob died two months later without having made the payment.
After Bob’s death, a contested probate proceeding began in the county court regarding his estate. The Court appointed a temporary dependent administrator.
Note that this administration, like all temporary administrations, was “dependent.” That meant that creditors had to follow the more exacting claim process.
The homebuilder filed a claim for $101,000 that it said was owed under its contract with Bob.
The Claim Was Rejected
The temporary dependent administrator rejected the homebuilder’s claim. In probate parlance, the claim was “disallowed.”
Now the homebuilder had to act fast.
Under the law applicable to dependent administrations, the homebuilder was required to commence a lawsuit in the court of original probate jurisdiction in which the estate was pending within 90 days after the rejection date, or its claim would be barred.
In other words, the homebuilder had 90 days to sue in the same county court where the estate case was pending.
The Creditor Filed in the Wrong Court
The homebuilder did not do that.
Instead, it filed its lawsuit in a district court. In its petition, it noted that its creditor claim had been denied by the estate administrator.
The clock continued to tick.
After the 90-day deadline had passed, the temporary dependent administrator filed a response that the district court did not have jurisdiction to consider the homebuilder’s lawsuit because the homebuilder had filed it in the wrong court.
The appellate court agreed, and the district court case was dismissed.
The Result: The Claim Was Barred
The 90-day deadline having long passed, it was too late for the homebuilder to file suit in the county court. Its claim was barred by statute. Bob’s probate administrator had cleverly avoided the $101,000 bill.
The Lesson: Do Not Rush to Pay Debts
Don’t rush in to pay your deceased relative’s debts. Check with your lawyer first; there may be a strategy for that.
Hammerle Morris Can Help With Probate and Creditor Claims
Probate debts can be more complicated than they first appear. Before paying a deceased loved one’s bills, it is important to understand the probate claim process, creditor deadlines, and whether the estate may have legal options.
If you have questions about probate administration, creditor claims, or debt after death, contact the Hammerle Morris team for guidance.
Virginia Hammerle is a licensed Texas attorney whose practice includes estate planning, probate, guardianship, and litigation.
This article is for informational purposes only and does not constitute legal advice.
