Priority of claims

What it means

An estate that can pay everything can pay in any order. An estate that cannot must pay in the order its state's statute sets, and the order is not the order in which the bills arrive or the order in which people ask.

The shape is similar across states even where the detail is not. Administration expenses and the costs of the funeral come near the top, along with any allowance the family is entitled to; taxes and certain government claims sit high; ordinary unsecured debts — credit cards, medical bills, personal loans — sit at the bottom, and are frequently paid nothing at all. Where an estate is insolvent, federal claims have their own statutory priority.

Secured debt is outside this ordering rather than at the top of it. A mortgage or a car loan is a claim against the thing it secures, and the lender's position does not depend on where the estate's other creditors stand.

The consequence for the person administering the estate is direct. A personal representative who pays a low-priority creditor and leaves a higher one unpaid can be answerable for the difference personally. That is why the sequence — publish notice, let the claim period run, then pay — is not bureaucratic caution.

Why it matters

The pressure is always to pay whoever is calling, and whoever is calling is usually near the bottom of the list.

It is also the reason a family should stop paying an estate's ordinary bills from their own money before finding out whether the estate can pay anything at all.

When you are likely to meet it

• When the debts look larger than the estate.
• When a collector says a family member is responsible, which is usually untrue.
• When deciding what to pay first with a limited balance.

How this varies by state

The classes and their order are set by each state's probate code. Federal priority in an insolvent estate is federal.

Related terms

• Creditor claim periodThe window, set by state law, in which somebody owed money by the estate has to present the claim or lose it.
• Estate accountingA statement of everything that came into the estate and everything that went out, presented before the estate can be closed.
• Family allowanceMoney a court may allow a surviving spouse and dependent children to draw from the estate while it is being settled, ahead of most creditors.
• Fiduciary dutyThe obligation to act for somebody else's benefit rather than your own — and to be able to show you did.
• Insolvent estateAn estate that owes more than it holds. State law then decides who gets paid, in what order, and who gets nothing.
• Notice to creditorsA formal announcement that an estate has been opened, which starts the clock on how long anyone owed money has to say so.
• Secured and unsecured debtWhether a debt is attached to a particular thing. It decides who has to be paid, in what order, and what happens if the estate cannot pay everyone.
• Set-asideA court order handing a small estate straight to the family without any administration.
• Beneficiary claimThe request a named person makes to an institution to be paid what they were named on. It is not a claim against the estate, and the two are opposites.

Sahvelo guidance that uses this

• Debts after a death