The term can refer to a number of types of financial debts, including but not limited to, outstanding loans (e.g., mortgages, personal loans, auto loans), credit card balances, medical bills, utility bills, taxes owed (e.g., income taxes, property taxes), unpaid rent or lease payments, or court-ordered payments.
Credits are a key component of the deceased's financial circumstance that needs to be addressed during the Probate process. That is, they need to be paid before the deceased's Assets can be Distributed to Surviving Family, Heirs or other Beneficiaries.
Important points about a deceased person's outstanding credit and debt include:
Priority of Payment: When a deceased person's Estate is being Administered, credits are typically prioritized ahead of legal fees, Funeral expenses, and other administrative costs, before distributing assets to beneficiaries.
Creditor Notification: As part of the probate process, the estate's Executor or Administrator is responsible for notifying known Creditors of the death and probate proceedings. Creditors have a specified period to file claims against the estate to request repayment.
Claim Verification: The executor or administrator, with the oversight of Probate Court, reviews and verifies the legitimacy of creditor claims. Not all claims may be valid, and some may be disputed or negotiated.
Payment of Credits: Once valid creditor claims have been established, the estate's assets are used to pay these debts. This may involve selling the deceased's assets, real estate property, liquidating investments, or using other available cash.
Insufficient Assets: If the deceased person's estate does not have sufficient assets to cover all creditor claims, their estate is considered Insolvent, and payment priorities will be determined by state law. All states have specific rules regarding the order in which certain types of creditors are paid.
Assets and Liabilities: As part of the Estate Administration process, the executor or administrator compiles a detailed Inventory of the deceased person's assets and liabilities. This inventory helps in assessing the overall financial situation of the estate.